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10. What is a share of the Company?

A share is a unit of investments in the company. A company divides its capital into shares, which are offered for sale to raise capital, called as issuing shares. Thus, a share is a unit of capital, expressing the ownership relationship between the company and the shareholder. The total share capital of a company is divided into a number of shares.

Why do company issue shares?

Shares are issued by a company to raise money (capital) to fund company projects or because the owners of the company want a big lump sum of money for working of the company.

How do people get shares in a company?

Shares of the company can be acquired either –
(a) directly from the company itself (share allotment) or
(b) from an existing shareholder (share transfer).

(a) Acquisition of shares from the company

When company offers its shares for subscription, people can apply for such shares. Applicants may be allotted shares on certain conditions, rules and regulations being met. People who are allotted shares become the company's members or shareholders. Allotment of shares in case of public companies and private companies are different.

In private companies the allotment will be a private arrangement between the company and those who invest in it. A public company may make the issue through the Stock Exchange or Alternative Investment Market.

(b) Acquisition of shares from an existing shareholder

Subject to such restrictions as appear in the company's constitution, a shareholder may sell his or her shares to another person. A sale or gift of shares will be called ‘transfer’ of the shares. If a shareholder dies, the shares get transferred to legal heir and this is called ‘transmission’ of the shares.