New to investing

What is a share? (1:02)

A share is a part ownership in a company, giving you a claim on part of the profits and, potentially the assets of the business. Shares have limited liability so they can fall to zero, but you will never owe more than you invested if the company ever loses a massive amount of money.

Shareholders can also be thought of the last people to be paid. This means that first the company pays lots of other stakeholders such as employees, debt holders and tax bills, only after all those payments are made do shareholder receive profits. However, the benefit of this arrangement is when a company grows, the shareholders often do particularly well because they can receive a large portion of any growth because shareholders basically take all profits once other stakeholders are paid.

Shareholders may also have a claim on the assets of the business, but again only after many other stakeholders are paid, so when a company fails, the shareholders can end up with nothing, especially if a company has a large amount of debt.

Historically shares have been an attractive investment option. Individual shares can be risky because companies do go bankrupt. However, some companies can earn very impressive returns sometimes even double, triple or more the initial investment. It’s this potential for very large gains in stocks that has tended to more than offset the impact of some companies falling to zero.

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