A share of a company is a unit of ownership in a corporation. If you want to know what shares of a company are in practical terms, owning one makes you a part-owner of the business, entitled to a proportional slice of its profits, a vote (usually) on how it’s run, and a claim on whatever assets remain if it’s ever wound down. A company that has issued one million shares and sold you 10,000 of them has handed you a one-percent stake. That’s the whole concept. Everything else is detail about which rights attach, how shares are created and priced, and what you owe in tax when you buy, hold, or sell them.
Ownership, Not a Loan
Buying a share is different from buying a bond. A bondholder lends money to the company and is a creditor who gets paid back with interest. A shareholder is an owner. If the business grows, your share becomes more valuable. If it struggles, your share loses value. The upside has no ceiling, and the downside is capped: shareholders in a corporation have limited liability, so you can’t lose more than what you paid for the shares.
Every corporation sets a ceiling on how many shares it’s allowed to create. That ceiling, called the authorized share count, lives in the company’s charter (sometimes called articles of incorporation) filed with the state.1U.S. Securities and Exchange Commission. Going Public Companies rarely sell all of them at once; they hold a reserve for later fundraising, employee pay, or acquisitions.
Shares that have actually been sold are called issued shares. The subset still held by outside investors are outstanding shares, which is the number that matters for calculations like earnings per share. The gap between issued and outstanding is usually treasury stock, which is stock the company has bought back from the market. Treasury stock counts as issued but not outstanding, carries no voting rights, and doesn’t figure into earnings per share.2Legal Information Institute. Treasury Stock
What Rights a Share Gives You
Voting
Common shareholders typically get one vote per share on major decisions: electing the board, approving mergers, authorizing stock splits. Most people don’t attend the annual meeting. They vote by proxy, marking a ballot the company sends out ahead of time. Publicly traded companies have to file a proxy statement with the SEC before each vote, disclosing director nominees, executive pay, and any proposals on the ballot.3eCFR. 17 CFR 240.14a-101 – Schedule 14A Information Required in Proxy Statement
Dividends
Dividends are distributions of company profits. The board decides whether to pay them, how much, and when. A profitable company has no obligation to pay a dividend at all, and many fast-growing companies reinvest every dollar instead. When dividends are paid, preferred shareholders get theirs before common shareholders see anything.
A Residual Claim
If a company is liquidated, creditors and bondholders are paid first, then preferred shareholders. Common shareholders receive whatever’s left, which in a bankruptcy may be nothing. That last-in-line position is the reason common stock carries more risk than bonds or preferred shares, and it’s also why common stock has the highest potential return.
Inspection
Shareholders generally have a legal right to look at the company’s books and records. You can’t just show up and demand files. Most states require a written request stating a legitimate purpose, with inspection during normal business hours.
Common Stock vs. Preferred Stock
Most investors hold common stock. It votes, and it has unlimited upside: if the company’s value doubles, your shares double. The tradeoff is that common shareholders are last in line for dividends and liquidation proceeds.
Preferred stock behaves more like a bond. It typically pays a fixed dividend that must be paid before any dividend reaches common shareholders. Many preferred shares are cumulative, meaning any skipped payments pile up and must be made whole before common dividends can resume. The price for that income priority is usually no voting rights and less participation in the company’s growth. Some preferred stock is convertible, letting the holder swap each preferred share for a set number of common shares at a ratio fixed when the stock was issued.
Dual-Class Structures
Not all common shares are equal. Some companies issue multiple classes with different voting power. A typical setup gives Class B shares ten votes while Class A shares get one, with insiders holding the high-vote class so they can control decisions even while owning a minority of the equity. Alphabet, Meta, and Berkshire Hathaway use some version of this. Snap went further at its IPO and sold shares to the public with zero votes. These structures let a small group override the broader shareholder base, which is why they draw criticism.
How Shares Come Into Existence
Private Placements
Before going public, companies often raise money by selling shares directly to a small group of wealthy or institutional investors. These sales are exempt from the full SEC registration process, but the investors generally must qualify as accredited, meaning they meet income or net worth thresholds set by the SEC.4U.S. Securities and Exchange Commission. Private Placements – Rule 506(b) Because the shares aren’t registered, they usually can’t be resold to the public without restrictions.
Initial Public Offerings
An IPO turns a private company into a publicly traded one. The company hires investment banks as underwriters to price the shares and sell them. Before anything trades, the company files a registration statement (Form S-1) with the SEC that includes audited financials, risk factors, planned uses of the money, and business details.1U.S. Securities and Exchange Commission. Going Public The SEC has to declare the filing effective before shares can be sold to the public.
Proceeds from the IPO go to the company. After it, the shares trade on exchanges like the NYSE or Nasdaq, and the company gets nothing from those secondary trades; investors are simply buying from and selling to one another at whatever price the market sets. For a window of 90 to 180 days after the IPO, insiders and early investors are usually barred by contract from selling, to keep a flood of shares from depressing the price before it stabilizes.
Follow-On Offerings and Dilution
Companies can sell more shares after the IPO. When they do, existing shareholders’ ownership percentage shrinks. If a company has 100 million shares outstanding and issues 20 million more, your one-percent stake drops to roughly 0.83 percent. Earnings per share falls mechanically too, because the same total profit is now spread across more shares. That’s dilution, and it’s one of the key dynamics to watch as an existing shareholder.
Some corporate charters include preemptive rights, which let existing shareholders buy newly issued shares first, in proportion to what they already own, to protect against dilution. Most state laws no longer grant preemptive rights automatically; they apply only if the charter specifically includes them.5Legal Information Institute. Preemptive Right
Stock Splits
A stock split increases the number of shares you own and proportionally reduces the price. Hold 100 shares at $200 before a 2-for-1 split, and you have 200 shares at $100 after. Your total value hasn’t changed. Companies split when the share price climbs high enough to put off smaller investors. A reverse split works the opposite way, consolidating shares and raising the price, and is often used to meet an exchange’s minimum-price listing requirement. Neither changes the company’s underlying value.
How to Buy Shares
You buy publicly traded shares through a brokerage account. Opening one requires basic personal information, your Social Security number for tax reporting and identity verification, and answers about your finances and investment experience.6FINRA. Brokerage Accounts You choose between a cash account, where you pay in full, and a margin account, which lets you borrow from the brokerage to fund part of a purchase. Margin amplifies gains and losses both, so it carries real risk for inexperienced investors.
Most major brokerages now offer commission-free trades and fractional shares, so you can invest a specific dollar amount instead of buying whole shares. If a single share costs $3,000 and you have $300, you can buy one-tenth of a share and collect proportional dividends on it. Voting on fractional shares is inconsistent: some brokerages allow proxy voting on fractions, others don’t, so check before assuming you’ll have a say.7FINRA. Investing in Fractional Shares
A dividend reinvestment plan, or DRIP, automatically uses your dividend payments to buy more shares of the same stock, usually commission-free. One trap: even though the cash never hits your bank account, reinvested dividends are still taxable income in the year they’re paid.
How a Share’s Value Is Measured
Book Value vs. Market Value
Book value per share is an accounting figure: total assets minus total liabilities, divided by shares outstanding. It’s what each share would theoretically be worth if the company sold everything and paid off its debts, based on the balance sheet. Market value is what investors are actually paying on the exchange. The two numbers are almost never equal, and the gap reflects what the market is paying for things not on the balance sheet, like brand, growth prospects, and competitive advantages.
The price-to-book ratio compares market price to book value. Below 1.0, shares trade for less than accounting value, which could mean a bargain or trouble ahead. Technology companies routinely carry high price-to-book ratios because much of their value is intellectual property and expected growth. Financial institutions trade closer to book because their assets are mostly financial instruments with clear market prices.
Price-to-Earnings
The price-to-earnings ratio divides the share price by earnings per share. A P/E of 20 means investors are paying $20 for every $1 of current annual earnings. Higher ratios suggest the market expects faster growth; lower ones may indicate a mature company or one investors view skeptically. P/E comparisons are most useful within an industry, where growth expectations and capital structures line up.
Market Capitalization
Market capitalization is share price multiplied by outstanding shares, and it’s how investors sort companies by size. There’s no official body setting the cutoffs, but the common convention is:
- Mega-cap: $200 billion and above
- Large-cap: $10 billion to $200 billion
- Mid-cap: $2 billion to $10 billion
- Small-cap: $250 million to $2 billion
- Micro-cap: below $250 million
These thresholds drift upward over time. Larger companies tend to be more stable and more liquid; smaller ones carry more volatility, with sharper gains and losses on the table.
What You’ll Owe in Tax
Capital Gains
Sell shares for more than you paid, and the profit is a capital gain. The tax rate depends on how long you held them. Held one year or less, the gain is short-term and taxed at your ordinary income rate (10% to 37% for 2026).8Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed Held more than a year, the gain is long-term and taxed at 0%, 15%, or 20% depending on your taxable income. For 2026, single filers with taxable income up to $49,450 pay 0%, and the 20% rate starts above $545,500.
Higher earners also owe a 3.8% net investment income tax on top of those rates. The surtax applies to single filers with modified adjusted gross income above $200,000 and married couples filing jointly above $250,000. Those thresholds aren’t adjusted for inflation, so more taxpayers cross them each year.9Congress.gov. The 3.8% Net Investment Income Tax – Overview, Data, and Policy
Dividends
Not all dividends are taxed alike. Qualified dividends, which come from most U.S. corporations, get the same preferential rates as long-term capital gains. To qualify, you have to hold the stock for more than 60 days during a 121-day window that starts 60 days before the ex-dividend date. Miss the holding period and the dividend is taxed as ordinary income.
The Wash Sale Rule
If you sell shares at a loss, you can usually use that loss to offset gains and cut your tax bill. But if you buy the same or a nearly identical stock within 30 days before or after the sale, the IRS disallows the loss. The disallowed amount is added to the cost basis of the replacement shares, pushing the tax benefit to whenever you eventually sell them.10Internal Revenue Service. Publication 550 – Investment Income and Expenses This catches people more often than you’d think, especially investors who sell at a loss in December for tax purposes and buy back in early January.
Shares as Pay
Many companies pay part of employees’ compensation in shares. Two forms are common, and they’re taxed differently.
Restricted stock units (RSUs) are promises to deliver shares after a vesting period, often spread over three to four years. When RSUs vest, the fair market value of the shares is treated as ordinary income and appears on your W-2 just like wages.11Internal Revenue Service. U.S. Taxation of Stock-Based Compensation Any gain after vesting is a capital gain when you sell, with the long-term rate applying if you hold the shares more than a year past vesting.
Incentive stock options (ISOs) let you buy company stock at a predetermined exercise price. You generally owe no regular income tax when you receive or exercise them, but exercising can trigger the alternative minimum tax in the year of exercise. When you sell the shares, the profit is a capital gain if you meet specific holding requirements. Sell too soon, and the gain is reclassified as ordinary income.12Internal Revenue Service. Topic No. 427 – Stock Options The holding rules are strict, and the tax difference between qualifying and not qualifying can be substantial, so it’s worth understanding them before you exercise.