Shares and Shareholders (AQA AS Business): Revision Note

Why shareholders invest

• Shares give anyone the chance to own part of a company and share in its success

  • In the UK, one in four adults owns shares directly, purchased through a trading app, online broker or savings account

  • Individual UK residents hold around 11% of the total value of shares quoted on the London Stock Exchange

  • Overseas investors own the majority of shares in UK businesses

  • Around 21% are held by investment companies, including pension funds

• By investing, shareholders provide the long-term capital a company needs to fulfil its objectives

• In return, shareholders receive:

  • cash rewards (dividends and any rise in the share price)

  • a vote at the Annual General Meeting

    • This allows shareholders to question company directors on strategy, pay or ethics

    • Shareholders influence directors to run the business in ways that keep the shareholders happy while attracting new investors

Reasons shareholders invest

• Ordinary shareholders accept that their investment involves risk

  • The value of their shares can go down

  • Dividends may not be issued or may be lower than expected

  • If the business fails, their shares no longer exist

• Some types of shares are less risky

  • Preference shareholders receive a fixed dividend

  • Debenture holders are reimbursed before dividends are issued

Share price

• The share price is the current value of one ordinary share in a company

  • The share price changes constantly as a result of the buying and selling of shares on the stock exchange on which they are listed

    • The share price rises when more shares are being bought than sold

    • The share price falls when more shares are being sold than bought

Influences on the share price

• A wide range of factors can affect the share price

  • The most significant factors are the actual and predicted performance of the business and external issues that are currently or expected to impact the business

Factors influencing the share price

The significance of share price changes

• A rising share price is a vote of confidence in a company

  • A high price means the firm needs to sell fewer new shares to raise the same cash, so existing owners avoid their control being highly diluted

  • Lenders see rising shares as a sign of strength, so they may be willing to offer loans on better terms

  • Directors’ bonuses and share-option rewards often rise with the share price, keeping key staff motivated

• A falling share price signals doubt in a company

  • A weaker share price signals risk, so banks may charge more interest or tighten lending criteria

  • A low valuation can tempt rival firms or investors to launch a hostile takeover bid

  • Employees with share options see their potential payout shrink, which can hurt motivation and staff retention

  • In the long term, a falling share price could make recruitment of high-calibre staff difficult

The effects of ownership on mission and objectives

Ownership and mission

• Sole trader

  • The business mission is usually shaped by the owner’s personal passion or lifestyle aim

    • E.g. the owner of York's Bluebird Bakery has a mission to “bring fresh artisan bread to the community each morning”

• Private limited company (Ltd)

  • The mission often reflects the founder family’s values and long-term vision because shares stay in a tight circle

    • E.g. Dyson Ltd focuses on “solving problems others ignore” rather than chasing short-term sales

• Public limited company (PLC)

  • The mission balances purpose with shareholder value

  • Its wording tends to be broad and growth-focused

    • E.g. Tesco PLC's mission is “to serve shoppers a little better every day” while delivering high financial returns to investors

Ownership and objectives

• Sole trader

  • Objectives centre on survival, steady income and personal fulfilment

  • Rapid expansion is rarely a priority

    • E.g. Eddie's Driving School allows its owner to earn a satisfactory income and a good work–life balance

• Private limited company

  • Objectives may mix growth with control, e.g. maintaining family ownership, protecting brand reputation or pursuing ethical goals

    • E.g. Lush Ltd sets environmental targets alongside profit

• Public limited company

  • Objectives are more financial and growth-driven, such as increasing earnings per share, paying regular dividends and building market share

    • E.g. Rolls-Royce PLC has an objective to increase profit margins and pay improved dividends