Shares - What are they?

[Nominees]

OK I know this might sound silly, but what are shares for from a company point of view (i.e. the entity issuing the shares.)?

And how does it all work?

I know this is vague ... just curious.

Nom

 

[paul_s]

Originally posted by Nominees
OK I know this might sound silly, but what are shares for from a company point of view (i.e. the entity issuing the shares.)?

And how does it all work?

I know this is vague ... just curious.

Nom

It is a way of splitting ownership of a company, basically every company, even a small privately owned company has an owner or owners who are shareholders.

In terms of companies on the stock exchange the main point of having shares listed is an easy way for the company to raise funds for the company or so the current owners can easily sell part of their holding to the general public.

So the company might issue shares to the public as it needs funds for expansion, the public wants to be able to sell/buy those shares easily afterwards so its listed on an exchange to faciliate easy trading of the shares.

 

[Nominees]

Hi Paul,

OK thanks for that. So it is very similar to buying units in a unit trust.

So each shareholder "owns" part of the company, but it doesn't make them liable for any misconduct from the company (i guess).

Why do some companies issue dividends and others don't?

And wat is a franked dividend?

(You have already guessed ... I am a complete novice when it comes to shares.)

Nom

 

[paul_s]

Originally posted by Nominees
Hi Paul,

OK thanks for that. So it is very similar to buying units in a unit trust.

So each shareholder "owns" part of the company, but it doesn't make them liable for any misconduct from the company (i guess).

Why do some companies issue dividends and others don't?

And wat is a franked dividend?

(You have already guessed ... I am a complete novice when it comes to shares.)

Nom

Generally shareholders aren't liable for misconduct of the company. This is often a reason for people to form companies rather than operate under their own name as it provides legal protection to some extent. There might be exceptions though where the shareholder is actually involved in decision making or running of the company, not really sure on how far things go on that, certainly directors will often be liable.

As far as dividends go a company can either pay dividends or retain their profits (or a bit of both) the other alternative is that they might be making losses so they might have no profit to think about paying out as dividends. If they need cash for expansion they might prefer not to pay out profits as dividends, its really up to the individual company.

A franked dividend means shareholders have access to "franking credits" which is rebate on their tax for the company tax already paid by the company, its basically to stop double taxation. Usually unfranked divdends means the company has some overseas profit sources so shareholders can't get a rebate for tax already paid.