Business

Study Notes

Shareholders and Incorporated Businesses

Level:
AS, A Level
Board:
AQA, Edexcel, OCR, IB

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

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