The act of issuing shares (GB) or stocks (US) – i. e. offering them for sale to the public- for the first time, is known as floating a company or making a flotation. Companies generally use a bank to underwrite the issue. In return for a fee, the bank guarantees to purchase the security issue at an agreed price on a certain day, although it hopes to sell it to the public. Newer and smaller companies trade on “ over –the-counter” markets, such as the Unlisted Securities Market in London.
Successful companies can apply to have their shares traded on the major stock exchanges, but in order to be quoted (GB) or listed (US) there, they have to fulfil a large number of requirements. One of these is to send their shareholders independently-audited annual reports, including the year’s trading results and a statement of the company’s financial position. Buying a share gives its holder part of the ownership of a company.
Shares generally entitle their owners to vote at companies’ General Meetings, to elect company directors, and to receive a proportion of distributed profits in the form of a dividend (or to receive part of the company’s residual value if it goes into bankruptcy). Shareholders can sell their shares at any time on the secondary market, but the market price of a share- the price quoted at any given time on the stock exchange, which reflects how well or badly the company is doing- may differ radically from its nominal, face or par value.
At the London Stock Exchange, share transactions do not have to be settled until the account day or settlement day at the end of a two-week accounting period. This allows speculators to buy shares hoping to resell them at a higher price before they actually pay for them, or to sell shares, hoping to buy them back at a lower price. If a company wishes to raise more money for expansion it can issue new shares. These are frequently offered to existing shareholders at less than their market price: this is known as a rights issue.
Companies may also turn part of their profit into capital by issuing new shares to shareholders instead of paying dividends. This is known as a bonus issue or scrip issue or capitalisation issue in Britain, and as a stock dividend or stock split in the US. American corporations are also permitted to reduce the amount of their capital by buying back their own shares, which are then known as treasury stock; in Britain this is generally not allowed, in order to protect companies’ creditors.
If a company sells shares at above their par value, this amount is recorded in financial statement as share premium (GB) or paid in surplus (US). The Financial Times Stock Exchange (FT-SE) 100 Share Index ( known as the ‘Gootsie’) records the average value of the 100 leading British shares, and is updated every minute during trading. The most important US index is the Dow Jones Industrial Average.
Cite this The Moon and Sixpence
The Moon and Sixpence. (2016, Nov 24). Retrieved from https://graduateway.com/the-moon-and-sixpence/