What It Is:
Shares are units of ownership in stocks and partnerships.
How It Works/Example:
The unit of ownership of a company is usually referred to as a "share." It is a single unit that represents equity in the company's capital structure. The owners of shares are called "shareholders." The distribution of shares in a company indicates the distribution of ownership in the company.
A share's value in a company or an investment is based on the price at which a share is sold in the market. One basic measure of a company's worth is market value, which is the number of outstanding shares multiplied by the price of a share.
Market Valuation = Number of Shares Outstanding X Share Price
Why It Matters:
Investors are granted a variety of rights based on their ownership of shares in a company or investment. Most important, however, their shares represent equity in the company, and, as a result, may have tax consequences when their equity is sold.