The market for shares

What type of legal businesses do not have shares?

Sole traders and partnerships

What businesses do have shares?

Private limited and public limited companies

What are public limited companies (PLCs)

• Companies which are owned by shareholders

• Unlike private limited companies shares for PLCs can be bought and sold on the stock exchange

• Shareholders have limited liability- if the company goes bankrupt, the shareholders can only lose the amount of they invested in shares and cannot be forced to sell their house to pay off debts

What is a dividend?

• A dividend is a share of the profits of a business

• Dividends are paid to shareholders to give them an incentive to buy shares in the company

What is a benefit of shares?

Price of shares can go up

What is the FTSE 100?

• An index of the share prices of the biggest 100 companies listed on the London stock exchange

• FTSE comes from the Financial Times and stock exchange as these are the two organisations that create the index

• The biggest companies are measured in terms of market capitalisation which is the total value of all the shares issued

What is the importance of company profits?

• If company profits rise then companies may pay higher dividends to shareholders

• This is likely to cause share prices to rise as it is more lucrative to own the shares if the return is higher

• This is also the case if investors expect the company to make higher profits as they will anticipate higher dividends in the future

What is the determination of a share price?

• The share price is determined by the demand and supply of shares

• If investors in the stock market believe the company will make less profit in the future they are less likely to buy shares in that company and more likely to sell shares in that company

• So the demand for the shares will fall and supply of the shares will rise causing the share price to fall