What are shares?

Every investor can own a tiny part of a limited company if they buy its shares sold on the Stock Exchange. By holding these, you become a shareholder and are entitled to certain privileges, such as the right to say how the company is run. You may even get a few perks thrown in as well - such as income from dividend payments.

Buying shares is about making money. It means singling out those companies you think are set for good times when they arrive and making sure you get to enjoy the party too.

What is a share certificate?

This is a printed record of your details which you need to provide if you ever decide to sell or transfer your shares. Keep hold of this as it's an important document.

The certificate shows your name, how many shares you own and whether you hold them alone or jointly with someone else. Your shareholder account number, a unique reference number, is also printed on the certificate.

What is a dividend?

A dividend is a percentage of a company's after-tax profits paid to shareholders. Some publicly-owned companies offer a dividend with their stock, while others do not. The choice of buying and owning a stock that pays a dividend is up to the individual investor, as there are both positive and negative aspects to consider. A company that offers a dividend with its stock is often a larger, more stable business in a field with little growth or a slow, steady growth potential.

The advantages of being a shareholder

OK, so the rights of small shareholders aren't such that you can cruise into the company's office and tell the boss what you think, but you do get the right to vote and take part in its annual general meeting. This might not seem like that big a deal, but it can be a great opportunity to make your voice heard.

Companies should be willing to share their reasoning on the current strategy for the company, even with their smaller shareholders.

Other shareholder perks

While shareholder benefits and perks are an added extra to investing in a company, they should not be the sole reason - the company and its performance should be primary reasons for choosing them. But perks can be useful, and canny investors can save substantial sums if they use them wisely.

The majority of companies offering incentives are in the retail, hotel, travel and leisure and housebuilding sectors.

But - as ever - the devil is in the detail. In many cases, a minimum holding is required to qualify for benefits and you may need to hold them for a certain period of time before claiming. There are also cases of so many clauses that it is not worth the investor's while.

Also, check what form the benefit will take. You may need to apply for discount cards, or vouchers may be hidden inside annual reports. Sometimes, you may even need a letter or share certificate when purchasing goods in shops, whereas in others you simply need to tell the sales assistant when buying items.

Of course, most companies hope that by offering perks its shareholders will be incentivised to spend more money and be loyal to them. But this can still work in your favour. Perks can prove useful in the run-up to Christmas, for example, when bulk-buying presents for family and friends. So, if you do have shares, it's worth checking whether dividends are the only perk of the investment.

Buying and selling shares

There are two ways to buy or sell shares. The first way is to trade your shares on London Stock Exchange using a broker or share dealing service to act for you. Most banks and building societies offer their own share dealing service.

When they have carried out your instructions, your dealing service or stockbroker will send you a contract note listing:

• The time and date of the sale or purchase
• The number of shares and their price
• The amount the deal was for (the 'consideration')
• Commission charges

If you made a mistake on your contract note, speak to your stockbroker immediately, otherwise you are accepting the transaction.

The second way is to find someone who is willing to buy shares from you or sell them to you in an 'off-market transfer'. This means you do not have to go through a stockbroker.

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