Issuing and Shares and IPOs

Question 1

The difference business structures

Answer 1

• Sole trader
• Partnership
• Private Limited Company (LTD)
• Public Limited Company (PLC)

Question 2

What are the characteristics of a sole trader?

Answer 2

• One business owner
• Owner has full control

Question 3

What are the characteristics of a partnership?

Answer 3

• Two or more business owners
• Legal documents normally outline structure and responsibilities

Question 4

What are the characteristics of a LTD?

Answer 4

• Owners (shareholders) can be the directors
• Shares are issued but not sold directly to the general public
• No AGM required

Question 5

What are the characteristics of a PLC?

Answer 5

• Run by a Board of Directors
• Directors are not the owners (shareholders)
• Shares can be bought by the general public
• Some but not all are listed on a stock exchange
• Must hold an AGM

Question 6

What is an IPO?

Answer 6

• An Initial Public Offering or IPO is the first-time shares of a business are offered to the public via a stock exchange

Question 7

The primary market for shares

Answer 7

• A company that has been in existence for sometime, looking to expand.
• Company sells shares to investors for the first time

Question 8

The secondary market for shares

Answer 8

• A company that has already been listed
• Investors will at some point wish to dispose of some of all of their shares and will generally do this through the stock exchange trading system.

Question 9

What are the benefits of IPOs for the business?

Answer 9

• Raising capital by selling shares
• Increased public profile and awareness of the company
• After the IPO it is easier to buy and sell shares, as they are being traded on a stock exchange; this means that the shares have become liquid.
• Once a company is a PLC, it is easier and cheaper to raise capital by borrowing

Question 10

What are drawbacks of IPOs for the business?

Answer 10

• Responsibility to shareholders which can cause conflicts (They like to receive dividend payments)
• Original owners lose outright control of the business
• Opens up the company to a potential takeover
• Greater security and level of regulations to abide by e.g. Accounts must be audited