What a share is

Most people meet shares as prices on a screen, which teaches you that a share is a thing whose number moves. It is not. It is a fraction of a company, and every sensible idea in this subject follows from taking that literally.

A fraction of a business

If a company has issued 1 crore shares and you hold 100, you own one ten-thousandth of it. Not of its building, not of its brand — of the company, which owns those things.

That fraction is what entitles you to:

A share of the profits, if the company chooses to distribute them. Chapter 3 is about that choice.

A vote, proportional to your holding, on the matters shareholders vote on — appointing directors, approving certain transactions, and so on. For a hundred shares this is close to theoretical, and it is real for anyone holding a large block.

A share of what is left if the company is wound up and everything is sold.

Residual claim: you are last in the queue

That third item deserves its own section, because it is the defining feature of equity and the least understood.

If a company is wound up, the proceeds go in a fixed order: employees and statutory dues, then secured lenders, then unsecured lenders, then preference shareholders, and finally ordinary shareholders — who get whatever remains, which is often nothing.

This is what makes equity a residual claim. Everyone else has a fixed promise; you have what is left over.

The mirror image is the reason anyone holds it. A lender is owed a fixed amount and gets exactly that, however well the business does. A shareholder is owed nothing and gets everything above what the fixed claims consume. Chapter 5 of Finance 101 priced that arrangement from the borrower's side; this is the same deal seen from the other end.

Last in the queue when it fails, first in line for the upside when it works. That is the trade, and no amount of analysis removes it.

Limited liability

The other structural fact: if the company fails owing far more than it has, creditors cannot come after you. The most you can lose is what you paid.

This sounds like a technicality and is one of the most consequential ideas in commerce. Without it, owning a fraction of a business would mean assuming a fraction of its debts, and no ordinary person could sensibly own shares in anything.

It also sets the shape of every equity outcome: your downside is capped at −100%, and your upside is not capped at all.

What a share does not give you

Not a claim on the company's assets. You cannot turn up and demand your ten-thousandth of the factory. The company owns the assets; you own a piece of the company.

Not a promise of dividends. The board decides. A profitable company may pay nothing for years, entirely legitimately.

Not a promise of anything at all. No repayment date, no minimum return, no floor under the price.

Not control, at ordinary sizes. A hundred shares is a vote you can cast and will not decide.

Why anyone buys them anyway

Because that residual claim, on a business that grows, is worth more over time — and chapter 2 takes apart exactly where that value shows up in your return.

It is worth being precise, though, about what you have bought. You have bought a fraction of a business, whose value depends on what that business earns and what others will pay for a claim on it. Everything else — the ticker, the chart, the daily move — is commentary on those two things.

The point

A share is a fraction of a company, carrying a vote, a claim on profits the board chooses to pay, and whatever is left after everyone else is paid. Your loss is limited to what you paid; your gain is not limited at all. That asymmetry is the whole product.