Apostrophes With Pronouns Always Indicate Contractions of Verbs--Not Possessives
Because of two colliding printing conventions, English grammarians long ago decided to regularize spelling of pronouns in two important, completely different situations, by changing the apostrophe rule we use when making possessives from nominative (i.e., "regular") nouns. Ordinarily, when a noun "owns" something, we add an apostrophe and an "s" to indicate the noun is possessive, like this:
The computer's hard drive burned out.
If we replace the noun ("computer") with the pronoun "it," trouble begins for the unwary speller.
Pronouns cause problems because they also can use apostrophes to indicate a contraction of a noun+verb combination when the verb is a form of "to be," as in "I'm" for "I am" and "it's" for "it is" and "they're" for "they are." Because grammarians hate unintentional ambiguity (and you should, too), they decided that all possessive pronouns would be spelled without apostrophes, reserving the apostrophe only for indicating the contraction of the pronoun and a verb form of "to be." Usually, this is not a spelling problem for most English writers. Three of the pronouns cause all the trouble because they sound alike but are spelled and mean differently. Memorize this list, and you will eliminate a lot of wasted negative teacher comments and needless reader confusion.
Possessive (always followed by a noun) Contraction (always containing the verb "to be" and followed by the rest of the predicate)
my dog I'm (i.e., I am)
your dog you're (i.e., you are)
its dog it's (i.e., it is)
his/her dog he's/she's (i.e., he is / she is)
our dog we're (i.e., we are)
their dog they're (i.e., they are)