How are shares used, and what are they, physically?

Question

Keeping in mind that I'm more or less a novice when it comes to finance, I'm having a lot of trouble finding a clear, concise answer to my questions: how do I use my shares, and what are they?

I understand the idea behind a share, but what is a share? Are they documents held by myself and the company I hold shares in? Are they something intangible, held by my financial institution? What, exactly, are they?

Also, how do I use my shares? If I want to sell my shares, how do I do it? Do they need to be declared on my tax forms? If they do, how do I figure out their value?

Answer 1

Shares used to be paper documents, but these days they are more commonly held electronically instead, although this partly depends on what country you're in. But it doesn't make any significant practical difference. Regardless of their physical form, a share simply signifies that you own a certain proportion of a company, and are thus entitled to receive any dividends that may be paid to the shareholders.

To sell your shares, you need a broker -- there are scores of online ones who will sell them for a modest fee. Your tax forms are entirely dependent on the jurisdiction(s) that tax you, and since you've not told us where you are, no one can answer that.

Answer 2

For some very small private companies I know of (and am part of), paper stocks do exist. You can sit at the table with the damn things in your hand and wave them in people's faces.

They tell everyone how much of the company you own as a result of the money you ponied up.

On the other hand, most stocks are now electronic. Nothing to hold. Just electronic records to review. They still represent how much you own of the company because of some amount of money you have put at risk, but they aren't anywhere near as much fun as the old-fasioned paper proofs.

(As MrChrister notes, you can pay a small fee to get paper if you like, even for some big companies. Some of these paper stocks are remarkably elaborate and fine looking, but hardly necessary.)

(You can see more info about what stocks are and what sort of stocks exist here: http://www.wikinvest.com/wiki/What_is_a_stock%3F)

Answer 3

If you are particularly interested in the share certificate artifacts themselves, there is a collection hobby in paper share certificates and bonds, called scripophily. This can include both active share certificates (for instance, think about giving your kid or grandkid a frameable paper share of Hasbro, Disney or McDonalds?), inactive certificates from famous bankruptcies or famous companies of the past, or just the visual interest in scrollwork and engraved vignettes.

Answer 4

How to 'use' your shares: If you own common shares in a company (as opposed to a fund) then you have the right (but not the obligation) to excersize one vote per share on questions put before the shareholders. Usually, this occurs once a year. Usually these questions regard approval of auditors. Sometimes they involve officers such as directors on the board. You will be mailed a form to fill out and mail back in.

Preferred shares usually are not voting shares,but common shares always are.

By the way, I do not recommend owning shares in companies. I recommend funds instead,either ETFs or mutual funds. Owning shares in companies puts you at risk of a failure of that company. Owning funds spreads that risk around,thus reducing your exposure.

There are, really, two purposes for owning shares 1) Owning shares gives you the right to declared dividends 2) Owning shares allows you to sell those shares at some time in the future. (Hopefully at a profit)

One obscure thing you can do with owned shares is to 'write' (sell) covered put options. But options are not something that you need to concern yourself with at this point.

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