What do you actually own when you buy a share?

Buying a share means buying a small, exact slice of a company. A company's ownership is divided into equal pieces called shares, and one share is fractional ownership in proportion to the total number of shares. If a company has a million shares and you hold one, you own a millionth of it.

What does that slice get you? Typically a fraction of the company's earnings, a fraction of what is left if the company is ever wound up, and a fraction of the voting power. When a company pays out part of its profits, those payments are called dividends, and each share receives its equal part. In a company with thousands of shareholders, nobody can vote on every daily decision, so shareholders use their shares as votes to elect a board of directors, usually one vote per share.

Here is the part that surprises people. Owning 50% of a company's shares is owning half the company, yet it gives you no right to walk in and use its buildings, machines or materials. The company is treated as a legal person, and it owns all its assets itself. Your slice is a claim on the company, not on its furniture. And that claim stands behind the company's creditors: if things go badly, people it owes money to are paid before shareholders.

Why would a company sell slices of itself? A private company's owners may want extra money for new projects, and they can raise it by selling shares to the general public on a stock exchange. That first sale is called an initial public offering, or IPO. Afterwards the stock can be bought and sold on stock exchanges.

The idea is older than it looks. Around 1250 in Toulouse, 100 shares of a milling company were traded at a value that depended on how profitable its mills were.