In the US, if one buys shares of some company, say Apple, through some broker, say Charles Schwab, does one actually become an owner of the company (Apple in this case)? I used to assume this was the case until I discovered that when one chooses automatic dividend reinvestment, the broker will credit fractional shares to one's account. However, there is no such thing as fractional shares. Presumably, the broker owns the shares and keeps a record of who "owns" fractions. That is, from the point of view of Apple, the broker is the owner of the full share. Hence, could it be that this is always the case, regardless of whether we are dealing with full or fractional shares?

Please note, this is not a question about who "holds" or keeps record of the shares, not even about who has particular rights (like voting rights etc.), but rather a question about who has direct legal ownership of the company the shares reference. Who does Apple think their owner is?

What would be the situation in case of an ADR?

I would appreciate if someone could provide authoritative references.


You "own" all of the shares, even fractions, in the sense that you can sell them, although some brokers charge a fee for selling fractional shares since it's a little more work for them. You may not get a voting right, or dividends, for the fractional share, but it shouldn't make a significant difference.

For example, Say you own 100 shares at $100 and the company pays a $2 dividend. The price of the stock will drop to $98 (since that's how dividends work), so you'll buy 2.04 shares with your $200 dividend. You now "own" 102.04 shares that are worth $98, for a total wealth of $10,000 (notice that your wealth did not change when a dividend is paid). From a voting standpoint, however, you only own 102 shares. Your broker might give you the dividend on that 0.04 of a share, but even if they don't it's not a meaningful amount (only 8 cents if they pay another $2 dividend).

ADRs are a different story. With an ADR you don't have any ownership or voting rights anyway (the holding company does), so that doesn't matter. Dividends are similar to the non-ADR case, and again it's up to the broker whether or not they pay you the dividend for the fractional share.

| improve this answer | |
  • this doesn't answer the question. My question was who owns the company. Is there a level of indirection introduced by the fact that I bought the shares through a broker. With fractional shares this is almost certainly the case, because there is no such thing as fractional shares. Companies issue full shares. I.e. If you had a fraction of a share the company would not recognize the holder an an owner. My question is, is this the same with full shares as well. – NingNing Nov 4 '19 at 14:23
  • You "own" the whole shares (and thus a percentage of the company) even if you bought them through a broker. I cannot speak to the mechanics of the fractional shares, but my guess is these are held by the broker (or a holding company) because a fraction of one share is insignificant from an ownership standpoint. – D Stanley Nov 4 '19 at 14:25
  • Do you have a reference? I was hoping it worked this way, but I now pretty much doubt it. It seems Apple, does not know about the individual shareholder, but only about the broker who holds the shares. If the broker and all of their records would magically disappear tomorrow, there would no longer be a record of ownership and hence, one would own nothing, it seems. – NingNing Nov 4 '19 at 14:29
  • @NingNing What makes you think that? The ownership records might be managed by an outside entity, for example Apple uses Computershare Investor Services (Investor FAQ item 5), but that certainly doesn't change your actual ownership rights. – D Stanley Nov 4 '19 at 15:56
  • 1
    For Apple to maintain those records they would need daily reports of all open market transactions and reconcile current ownership with that records. Since they don't need that for their day-to-day operations (they only need it for dividend disbursement and shareholder meeting notifications), it's much cheaper to hire a transfer agent to do that for them. – D Stanley Nov 4 '19 at 22:28

does one actually become an owner of the company

No? As in: buying 100 shares of Microsoft does not make you the OWNER if Microsoft. You become the owner of the shares you buy, which are hold in custody by your broker's deposit bank as separate collateral separate from his operating capital.

Presumably, the broker owns the shares and keeps a record of who "owns" fractions.

Yes. See, shares today are electronic so they have to live in an account and the brokers rely on custodian services to handle this.

The broker's custodian has direct ownership, but being a custodian his ownership is limited to actually holding them in your name.

| improve this answer | |
  • The broker's custodian has direct ownership do you know what a custodian is? – quid Nov 4 '19 at 15:21
  • Yes, but he still has direct ownership as in control. He can make a ton of crap with the shares. This is highly illegal and custodians are built around control, but theoretically this is how it is. – TomTom Nov 4 '19 at 15:39

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.