Share

What it means

A share is a security carrying a stake in the share capital of a joint-stock company, a vote at the general meeting and a claim to a dividend.

It is not an s. r. o. business share: that moves by contract and is entered in the commercial register, while shareholders are as a rule not listed there. Shares are either paper or book-entry.

The nominal value of a share is its slice of the registered capital, not its price. What a share sells for is set by agreement or by the market, and where subscribers pay more than nominal value the difference is share premium. For a shareholder buying or selling, what matters is fair value; the nominal figure stays a number in the articles and the commercial register.

How it works in practice

Book-entry shares are kept by the central securities depository and ownership passes when the transfer is recorded on the holder’s account. Registered paper shares pass by endorsement, delivery and an entry in the list of shareholders.

For the holder, shares are securities carried as financial assets. Profit is distributed by the general meeting on a proposal from the board of directors, and tax on dividends to individuals is withheld at source.

When a company offers shares to staff through an ESOP, we deal with the tax side as well. Shares acquired below their value may be taxable income for the employee, and for the employer that reaches into payroll and contributions. So the programme is set up with the accountant before the first shares are granted, not afterwards.

What to watch out for

With book-entry shares a signed contract is not enough: until the transfer is recorded on the securities account, the seller is still the shareholder. A buyer who votes on that basis risks the resolution being struck down.

Another mistake is a neglected list of shareholders for paper shares. When shares change hands several times and nobody records it, the company does not know whom to invite to the general meeting, whom to pay the dividend or who may vote. Disputes over whether resolutions are valid then last longer than the share deal itself.