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What Are Shares?

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Shares, just like the name, signifies the ownership of a business. A business needs money to start. In order to raise enough money to start a business, the initiator calls up a meeting among the people who want to take part in the business. They put their money together as their contributions to the business. And then they will get the receipts that show their investment makes them, the investors, part-owners of the company.

As owners of a company, those investors, say the shareholders, have all sorts of privileges in company’s decision-making process. For example, a shareholder has his or her right to join the general meeting of shareholders, or at least the extended general meeting of shareholders when the company changes the articles of the association. However, not all the shareholders of a company can join decision-making processes at all classes. Because the amount of shares of different shareholders varies a lot, the shareholders carry out their rights according to their amount of shares partially. For example, a shareholder with 5% shares or above must attend the meeting of the board and vote in the election of chairman of the board. But the shareholder with 0.001% share may not be able to join that process if there are other shareholders who meet the standards and their total amount of share meet the standard which are different across countries.

The shareholders, unlike the banks that lend money to the company for some repayment at some rates, are investors and owners of the company. They cannot return their shares and drawback their money from the company. This means their ownership of the business is permanent.  But what if a shareholder wants to quit the company and drawback the money? The only way to transfer the ownership of a company is to sell his shares to other people. In this way, the original shareholder receive money from the interested buyer which is usually equal or more than the money he invested in the company. When the deal is fair, the extra money in selling the shares is proportional to the value of the company in comparison to its original value. If the company grew, the money shareholders get in selling the shares should be more than the amount they invested at first, and less vice versa.

The change of shareholders may affect the operation of the company. When the amount of shares determines their weights in decision-making process, the person who hold the share also have the corresponding power. And it especially important when happening in a listed company.

Usually, during the acquisition of a company, which differs from the merging in the way that some one buys then owns and company, the total value of that company is decided by the price of its single share along with the total amount of its shares. As discussed above, the shares signify the ownership of the company. So if the amount of shares transferred is above 50%, the real control of the company is transferred because none of the shareholders could have more weight than him when making a decision.

In conclusion, the shares of a company reflect the ownership of the company. And the value of the company is correlated with the total value of its shares. The transfer of shares needs our attention because it can cause the transfer of its control.

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