Investing in shares
Shares are often surrounded by mystique but the principle behind them is simple and straightforward. Shares, also known as equities, provide you with part-ownership of a company so when you invest in shares; you are buying ‘a share’ of that business. Companies issue shares to raise money and investors buy shares in a business because they believe the company will do well and they want to ‘share’ in its success.
Companies do not have to be quoted on the stock market to issue shares. When businesses start out, many of them raise money from outside investors, who are given a share of the company in return. These investors tend to be friends, family or benefactors and their shares are known as unquoted because the companies are not listed on any stockmarket.
Even if a company states that it is a ‘PLC’ (Public Limited Company) it does not necessarily mean it is listed on a Stock Exchange. This is just a legal status for the company.
When a company wants to raise money more widely, it can apply to become publicly listed or quoted on an exchange, such as the London Stock Exchange. Once it has gone through the approval process the company then has its shares admitted to trading on an exchange and its shares can be bought by individual investors and large, investing institutions, such as pension funds and life assurers. Companies have to satisfy certain legal and financial criteria before their shares can be listed on a stockmarket and the shares are known as quoted because their prices are quoted every day on a stock exchange.
Owning shares in a company means that you are entitled to a say in its affairs. All PLCs have annual meetings, where shareholders vote on matters such as the company’s accounts, directors’ appointments and pay packages.
Companies also hold meetings for shareholders when they are about to make big changes to their business, such as buying or selling parts of the company or raising fresh capital.
Trading in shares is executed by stockbrokers, who buy and sell shares on behalf of investors. Increasingly, investors buy shares over the internet, using online broking services.