Shareholders and Incorporated Businesses

The most important point to understand about share ownership is that an “incorporated” business (i.e. a company) is a separate legal entity. The owners of a company are the shareholders - those who own the share capital

Incorporated Businesses

There are two main kinds of incorporated business (i.e. company):

1. Private Limited Company

Key points to remember:

• Most popular form of incorporated business
• Company is privately-owned
• Shares cannot be traded publicly
• Usually just 1 or a few shareholders
• Quick & cheap to set up and administer

2. Public Limited Company

Key points to remember:

• Minimum share capital £50,000
• Shares may be traded on a public stock market (but don't have to be)
• Usually many shareholders
• More detailed disclosure of information required
• More costly to administer

Shareholders in both private and public limited companies earn their rewards from two aspects of their business ownership: dividends and capital growth:

Dividends

• Dividends are payments made to shareholders by the company from earned profits
• Amount paid is “per share” – e.g. £1 per share held
• Normally no requirement to pay dividends, but most quoted companies do

Capital Growth (also known as Capital Gain)

• Arises from an increase in the value of the business
• Reflected in an increase in a share price
• Only realised when a share is sold (the price paid)
• No guarantee that a shareholding will increase in value – business value can change both ways