Shares lesson 1:
What are shares?
Intro
This lesson looks at what shares are, and cover the topics:
- shares and shareholders
- shareholder rights
- company rolesIt takes about 8 minutes to complete.
The legal bit
The information on this website is a starting point - we've linked to more information (and how to contact professional advisors) throughout the lessons if you need to know more.This is not investment, financial or tax advice.We try to make sure that information on the website is accurate and free from errors. However, to the maximum extent provided by law (but subject to your rights under the Consumer Guarantees Act), Aptitude and its personnel:
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What is a share?
A share is a piece of ownership in a company - when you buy a share, you’re becoming an owner of that company. Companies are set up so that they can have lots of owners who can all own different amount of shares.In a company, there are three main groups of people:
- employees - work for the company
- shareholders - own the company
- directors - govern the company on behalf of the shareholders.Becoming a shareholder generally gives you certain rights, like the right to receive dividends (a share of company profits that gets paid to shareholders) or to vote on company matters - like appointing or removing directors.
Becoming a shareholder
The market price for a share depends on what investors are willing to pay, and what sellers are willing to sell for - like buying or selling a car.To make that decision, investors generally consider things like:- recent company profit
- the dividends it pays
- potential for growth
- the risks it’s facing
- overall market sentiment.Once you've bought a share, you're a shareholder!
What is a fund?
An exchange-traded fund (ETF) is a fund made up of a ‘basket’ of investments, which could be shares, bonds, currencies or other types of investment.You can compare it to buying a mixed case of wine, which someone puts together for you, and saves you picking all the individual bottles.Owning a unit of a fund is different to owning a share in a company, because you:
- do not directly own shares, but a portion of all investments in the fund
- do not control the individual investments made within the fund.
Where to find out more
You might find it helpful to meet or chat online with like-minded people, or pick the brains of more experienced investors. For example, you could:- join the New Zealand Shareholders’ Association, which provides information, education and access to analysis for shareholders managing their own investments
- sorted.org.nz has a great selection of investing tools and information
- the Financial Markets Authority (FMA) is the government organisation responsible for this area - they've got a heap of investor education material
- find a share club or online forum such as sharetrader.co.nz
- new online services like Sharesies and Hatch have info pages, Facebook groups and information evenings, which are another great way to get started
- talk to a regulated financial advisor.For advice that takes into account your broader financial situation, you should speak to a regulated financial advisor. The FMA has page on working with advisors that's worth reading before you engage one.
Quiz
1. How do you become a shareholder?
Quiz
Great work!
Owning any number of shares makes you a shareholder.
Quiz
Not quite...
A director is a separate role from shareholder.
Quiz
Not quite...
An employee is employed by a company. Being employed by a company does not make you a shareholder.
Quiz
2. What is a director's role?
Quiz
Not quite...
While a director is responsible for overseeing what happens at the company, they are not owners.
Quiz
Not quite...
Directors will attend board meetings and some company events, but they do not work at the company in the way employees do.
Quiz
Perfect!
The directors' role is to oversee and govern the company, ensuring it continues to run and acting on behalf of the shareholders.
Quiz
3. What are examples of shareholder rights?
Quiz
Yes!
As owners, shareholders are entitled to receive a portion of the profits, if these are not being re-invested in the company.
Quiz
Yes!
As owners, shareholders are entitled to vote on who represents them on the board of the company.
Quiz
Have another go
Shareholders should not directly influence the hiring or firing of staff.
Completed!
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Great work!
Well done on completing this lesson, we hope you enjoyed it!Ready for the next one?
