You have likely heard the term 'Shares' at some point in your life- perhaps you had a family member that liked investing or you overheard the term at work, or you may have even seen the term in one of my other posts. Well, now I'm going to explain the meaning behind the word.
Companies offer shares to raise money so they can buy new equipment, upgrade their website, cover day to day costs, pay off debt or any number of other things. However, the trade-off for the company is they have to share their profits with the people who bought the shares, and there is more admin and oversight required.
In turn, shares entitle the investors to own part of the company and they become what is known as a shareholder. Shareholders are joint owners with all the other investors in the company. However, this doesn't mean you can go into a company and start claiming stuff. As an owner, you are able to receive part of the companies profits but you do not get involved in the day to day management of the company.
Being a shareholder also gives you voting right (depending on your investment company/broker). This means that when there are big decisions to be made- for example, the election of board members or selling the company- you will be asked by the company for your opinion and you can choose to approve or reject the proposal. However, your vote is proportional to how much of the company you own. If you have 1% of the shares in a company, then your vote only counts towards 1% of the results.
Units are similar to shares, but instead of being offered by a company, they are offered by a fund. A fund gathers the money of a wide range of investors and uses it to invest in companies, bonds, gold, etc. Funds try to make better profits than an individual would be able to themselves and charge a management fee in return. Whether or not funds are better than investing yourself is a long-argued question.
