When people say, “I bought shares in a company,” what does that actually mean?
Does it mean they just bought a number on a screen?
Or does it mean something more powerful?
Let’s explain this in a simple and practical way.
What is a Share?
A share is a small piece of ownership in a company.
When a company is listed on the Australian Securities Exchange, it divides itself into thousands, millions, or even billions of small units. These units are called shares.
When you buy one share, you own a tiny part of that company.
The more shares you own, the bigger your ownership percentage.
Simple Real-Life Example
Imagine a pizza cut into 8 slices.
If you own:
- 1 slice → you own 12.5%
- 4 slices → you own 50%
- All 8 slices → you own 100%
Companies work the same way — except instead of 8 slices, they may have 1 billion shares.
What Does Ownership Actually Mean?
Owning shares gives you certain rights:
1️⃣ You Own Part of the Company
Even if it’s a small fraction, you are legally a part-owner.
2️⃣ You Can Receive Dividends
If the company makes profit, it may share part of that profit with shareholders.
3️⃣ You Can Vote
Shareholders can vote on:
- Electing directors
- Major business decisions
- Mergers and acquisitions
4️⃣ You Benefit From Growth
If the company grows and becomes more valuable, the share price may rise.
How Companies Create Shares
When a company wants to raise money, it can:
- Borrow from a bank
OR - Sell ownership to the public
If it chooses to sell ownership, it lists on the ASX through an IPO (Initial Public Offering).
Example:
A company wants to raise $100 million.
It may issue 100 million shares at $1 each.
Investors buy those shares.
The company receives the money.
Investors receive ownership.
What Happens After You Buy a Share?
Once you buy shares through a broker:
- The shares are recorded in your account.
- You can hold them long-term.
- You can sell them anytime during market hours.
- You may receive dividends.
- You benefit if the price rises.
- You lose value if the price falls.
Ownership continues as long as you hold the shares.
How Do Shares Make Money?
There are two main ways:
1️⃣ Capital Growth
If you buy a share at $10 and later sell it at $15, you make a $5 gain per share.
2️⃣ Dividends
Some companies pay profits to shareholders regularly (often twice per year in Australia).
Example:
You own 500 shares.
Dividend is 20 cents per share.
You receive $100.
What Determines Share Price?
Share price is determined by supply and demand.
If more investors want to buy → price rises.
If more investors want to sell → price falls.
Factors affecting price:
- Company profits
- Economic conditions
- Interest rates
- Global events
- Investor confidence
The company does not directly set the daily price. The market does.
Types of Shares
Most investors buy ordinary shares, which provide:
- Voting rights
- Dividend eligibility
- Capital growth potential
There are also preference shares, which:
- Usually pay fixed dividends
- Often have no voting rights
For beginners, ordinary shares are most common.
Market Capitalisation Explained
Market capitalisation (market cap) is the total value of a company.
Formula:
Share Price × Total Shares = Market Cap
Example:
If a company has:
1 million shares
And each share is $20
Market cap = $20 million
This helps investors compare company size.
Are Shares Risky?
Yes — shares carry risk.
Risks include:
- Company profits falling
- Economic downturn
- Poor management decisions
- Global crisis
- Bankruptcy (in rare cases)
If a company fails completely, shareholders are last in line to receive money.
That’s why diversification is important — never put all your money into one company.
Shares vs Saving in a Bank
Bank savings:
- Low risk
- Low return
- Guaranteed interest
Shares:
- Higher risk
- Higher potential return
- No guarantee
Over long periods, shares historically outperform savings accounts — but they fluctuate.
Example Scenario for Students
Let’s say you invest $1,000 in shares.
Scenario A:
Company grows strongly.
Your investment becomes $1,500.
Scenario B:
Company struggles.
Your investment drops to $700.
This movement is normal in the share market.
Long-term investors focus on strong businesses and patience.
Why Shares Matter in Australia
Many Australians indirectly own shares through:
- Superannuation funds
- Managed funds
- ETFs
Even if you haven’t bought shares yourself, your super likely owns part of major Australian companies.
That means millions of Australians are business owners — even if they don’t realise it.
Key Terms to Remember
Share – A unit of ownership in a company
Shareholder – A person who owns shares
Dividend – Profit paid to shareholders
Capital gain – Profit from selling at higher price
Market cap – Total value of company
IPO – First public share offering
Final Thought
A share is not just a number on a screen.
It represents:
- Ownership
- Opportunity
- Responsibility
- Risk
When you buy shares, you’re not gambling — you’re becoming a part-owner in real businesses that employ people, create products, and grow Australia’s economy.
Understanding ownership is the foundation of smart investing.