What are shareholders
The owners of limited companies and can be individuals, companies or institutions
- in ltd’s this needs to be friends,family or acquaintances of the founder and there can be 2-50
- in plc’s anyone can buy shares
Features of shareholders in ltd’s
- all shareholders must agree on a potential purchase of shares
- they aren’t publicly traded
Features of shareholders in plc’s
- anyone can buy shares in an existing plc
- they are freely traded on stock exchange
- usually require a stockbroker who will act as an intermediary in the transition
How do shareholders influence a business?
- provide finance for a business, founders give up ownership to fund expansion and development
- vote on key decisions that effect the running of the business, the value of the vote is equal to level of ownership
- can access all company info, books and records
What is ordinary share capital?
- the company only raises money when shares are sold for the first time
- this money is ordinary share capital
- never has to pay this money back
- if the shareholder wants it back they must sell shares to another investor
- company makes no money when shareholders sell their shares
Number of shares sold X price they were sold for
Why become a shareholder?
- to be involved in the running of a business
- to try take control of a business (50.01%)
- to make money (capital gain) selling shares got higher prices than what they were bought for.
- earn money through a dividend payment
What are dividends?
- a share in the company indicates ownership of a company
- as an owner, you are entitled to a share in the profits of the company
- not all profit is paid out, some is retained
- from what is given out, a shareholder is paid a proportion
What are share prices based on and how do they effect a business?
- shares are firstly sold through an initial public offering (IPO) in the primary market
- price is set based on size and value of company
- once bought they are then traded on stock exchange (secondary market)
- price is now determined by how many shares are available to be bought and how much demand there is for them
How do share prices change?
- state of the economy, if it’s doing well investors are more likely to spend on shares and prices will rise
- performance of the company, if it’s doing well investors will wish to buy shares to benefit from dividends
- proposed takeovers, if its thought another company wishes to buy out and/ or takeover the company it will affect the price of the shares
- expectations, if investors like the company idea they will sell shares
Why do companies care about share prices?
- low share price makes it easier to be bought out
- shareholders are owners, if price falls because of performance they’ll want to change things (employees)
- managers and employees may be given shares as an incentive
- higher the market cap, easier it is to borrow money
What is market capitalisation?
- calculates the value of a plc
- current share price X number of shares issued
- used to judge the size of a company and value
- large cap = >4bn value, medium cap = 500m-4bn, small cap = <500m
What are the features of the different sized “cap” companies?
Large cap companies - have less volatile share price and more likely to pay dividends
Medium cap companies - better growth prospects, frequently targeted for mergers with larger companies and also more volatile than large companies
Small cap companies - likely to be long term investment, slow and steady
