To play your guitar, sit up in a straight-backed chair or stool. When you orient the guitar to your body, the smallest string should be pointed toward the ground and the thickest string should be pointed up at the ceiling. Hold the back of the guitar so it touches your stomach and chest and rests on the leg of your strumming/picking hand.
The guitar should be held mostly with your leg and by cradling it in your body. Your left hand is used to stabilize the neck and fret the strings. Hold the neck in the V created by your thumb and forefinger. You should be able to smoothly move your left hand up and down the neck without having to hold it up.
Even if you hold the guitar correctly, you may experience some discomfort while getting used to playing. Do not become discouraged if your shoulder hurts in addition to your neck, arms and hands. You will eventually get used to it.