Shares Explained Simply: What Does It Mean to Be a Shareholder?

A share represents an ownership interest in a company. Companies divide their equity into a defined number of shares. Anyone who buys one of these shares becomes a shareholder and owns a small part of the company.

Shares are fundamentally different from bonds. When you buy a share, you acquire an interest in a company. With a bond, by contrast, you provide capital to a company or a government. This capital bears interest and is repaid under agreed terms.

By issuing shares, companies can raise equity. This capital can be used for various purposes, such as growth, expansion into new markets, the development of new products, or investment in operations.

In return, investors become co-owners. Unlike a traditional bond, the capital provided has no fixed repayment date and no interest rate agreed in advance.

Not all shares are the same. Depending on the company, different classes of shares may exist. Two important types are:

The rights attached to a share depend on the specific features of that share and the company concerned.

A share is more than a tradable security. Ownership may also provide rights in relation to the company. Depending on the share, these may include:

• Voting rights: Shareholders can vote on certain company decisions at the Annual General Meeting.

• Right to dividends: If a company approves a distribution, shareholders are entitled to receive it based on the shares they hold.

• Right to information: Shareholders are entitled to certain information about the company.

• Subscription rights: When a company increases its share capital, existing shareholders may be able to purchase new shares under certain conditions. 

This distinguishes shareholders, for example, from people who merely provide capital through a bond.

The return on a share can generally come from two sources: capital gains and dividends.

A share price is determined on the exchange by supply and demand. When matching buy and sell orders meet, a transaction takes place. The exchange itself does not set the share price.

Whether a share is bought or sold can depend on many factors. These include:

• The company’s business results

• Expectations for future developments 

• Changes in the economic environment

• Political or regulatory developments

• General movements in the financial markets

The share price therefore reflects more than the company’s current situation. Market participants’ expectations for its future development also influence supply and demand. 

Shareholders can participate in a company’s positive economic development. Potential returns may come from rising share prices and dividends. At the same time, a company may perform below expectations, causing its share price to fall.

Several types of risk can be distinguished:

Diversification is one way to reduce the risk associated with individual companies in a portfolio. It involves spreading capital across different companies, sectors, regions, or asset classes. However, it cannot fully eliminate general market risks.

Individual shares show how the market values a specific company. An equity index, by contrast, can provide a view of a broader segment of the equity market.

An equity index summarizes the performance of selected shares in a single figure. The Swiss Market Index (SMI), for example, comprises 20 large and liquid Swiss companies. The Swiss Performance Index (SPI) covers a much broader segment of the Swiss equity market.

Indices therefore make it possible to compare the performance of individual shares with a broader market segment.

Listed shares can be bought and sold through a bank or broker. They transmit the corresponding orders to the trading venue, where buy and sell interests meet in the electronic order book.

The order type determines the conditions under which a purchase or sale is executed. A limit buy order, for example, specifies a maximum purchase price. A market order, by contrast, prioritizes rapid execution at the best available market price.