What Exactly Does It Mean To Buy Shares?

buying shares

Buying a share means you are getting into a venture of owning a unit of a financial asset, a corporation a company, etc. Though as an investor you may not have a direct control over the day to day running of business but you will be entitled to a profit in which the venture generates which is remitted by means of a dividend.

How can you buy shares

  1. You can buy shares from a company when it is offered through an IPO (Initial public offer) this is literally the first sellout of a stock by the company. This is done by small private companies who are seeking to raise more capital for expansion.
  2. By rights issue: This is when a company offers shares to its current shareholders. its remitted through the means of dividends
  3. Bonus issue : This is when a company offers its current shareholders additional shares in place of dividendsbuy shares

What you need to know before buying shares

There are basically two types of stocks /Shares. Common stock and preferred stocks/shares. Common stocks are generally what is held by the public as a majority. When you have a common stock, you hold exclusive rights in voting and benefiting from dividends. Preferred stocks have fewer rights than the common stock but its dividends are called first before the common stock.

When you are investing in shares of a particular company its important to know the worth of that company. This worth is in stock language known as the market share capital which is calculated by the number of shares offered multiplied by the rice of share per capital. This will prevent you from overpaying for shares when you consider the profitability of the companies at hand. For example if company A quotes its shares at 50 KES and Company B quotes its shares at 51 KES you would like to consider the number of shares been offered versus the profitability of the company in the previous years . This will help you track the dividends you will receive from your shares.

You would love to study other few factors before investing in shares of a particular company. Ask yourself does the company have the habit of buying back shares? If so then this is a big incentive for investors who would like to have large returns for their investments. How this makes sense is that for example if Company A initially offers 5 million shares and then buys back 500,000 shares, it means that dividends are shared within a smaller pool of investors which makes a lot of sense.

Now that you have bought Shares

  1. You have become a shareholder in that particular company and you hold exclusive rights of voting in or out board members of that particular company.
  2. You are entitled to earn dividends from the shares you have invested. You are also entitled to increase your number of shares in that particular company
  3. You have liquidation rights incase the company goes bankrupt
  4. You can use your shares as a security for acquiring loan.