STOCK MARKET FLOTATION

Question 1

WHEN DOES A STOCK MARKET FLOTATION OCCUR? WHAT DOES IT MEAN?

Answer 1

When a company goes public and becomes a plc. This means that the company’s shares are offered on sale to the general public. As these shares can now be traded, it has a significant impact on how the company operates.

Question 2

WHAT ARE THE STEPS FOR A BUSINESS GOING PUBLIC?

Answer 2

1. Issue a prospectus advertising the company to the public
2. The prospectus and info on the company are reviewed by lawyers
3. A minimum of £50,000 share capital has to be provided up front
4. If successful, a certificate to sell shares will be issued
5. The initial public offering goes live and the business can start trading on the stock market

Question 3

WHAT ARE SHARE PRICES AFFECTED BY?

Answer 3

Share prices are affected by the company’s performance and the business environment in which it trades. A company’s share price could fall even if it is performing well if there are fears for the future.

Question 4

WHAT HAPPENS WHEN SHARE PRICES RISE?

Answer 4

1. Managers may receive a bonus
2. The company finds it easier to raise capital
3. Consumers with shares feel more confident to spend
4. The business may receive positive publicity

Question 5

WHAT HAPPENS WHEN SHARE PRICES FALL?

Answer 5

1. The company may become vulnerable to a takeover
2. Price fall gives an indication of poor performance
3. The company finds it harder to raise capital
4. Consumers with shares feel less confident to spend