Tutor Led Workshop 3

• Tutor-Led Workshop 3 - Capital Markets and investment
• MOD007170 - FBL Level 6
• Vijay Tohani CFA - Senior Lecturer in Finance, Faculty of Business and Law, Anglia Ruskin University
• Topic - Equities
• Agenda


  • Company Formation, Administration and General Meetings
  • Features, Benefits and Risks of Owning Shares
  • Calculating Dividend Yield
  • Corporate Actions
  • Primary and Secondary Markets
  • Depositary Receipts
  • World Stock Markets
  • Stock Market Indices
  • Trading and Settlement Systems
• Learning Objectives


  • Know how a company is formed and the differences between private and public companies
  • Know the purpose and format of Annual General Meetings
• How many UK plcs can you think of?
• Source: www.londonstockexchange.com
• Why set-up a company?

  • Limited Liability
  • Separate legal identity
  • Continuity
  • Corporation tax lower than income tax
  • New shareholders and investors easily introduced
  • Company name protected
  • Supports growth
• Public Limited Company (plc)

  • Shares
  • Governance
  • Reporting
• Private Limited Company (Ltd)

  • Shares
  • Governance
  • Reporting

  
• Minimum of 1 shareholder for a Private Limited Company
• Shares cannot be issued to the public for a Private Limited Company - mainly family and friends
• Issued share capital can be less than £50,000 for a Private Limited Company
• Shareholders and Directors are often the same people for a Private Limited Company
• None of the Private Limited Companies are listed

  
• Minimum of 2 shareholders for a Public Limited Company
• Shares are issued to the public for a Public Limited Company
• Minimum issued share capital is £50,000 for a Public Limited Company
• Majority of shareholders are not Directors for a Public Limited Company
• 25% of shares issued must be paid up for a Public Limited Company
• Not all Public Limited Companies are listed
• Private Limited Company


  • Minimum of 1 Director
  • Annual General Meetings not compulsory
  • Company Secretary does not have to be a qualified person
  • Memorandum of Association and Articles of Association required
  • An incorporated business (Limited Liability)
  • Abide by Companies Act 2006

  
• Public Limited Company


  • Minimum of 2 Directors
  • Must hold Annual General Meetings (AGM)
  • Company Secretary must be a qualified person
  • An incorporated business (Limited Liability)
  • Abide by Companies Act 2006
• Memorandum of Association


  Sets out the details of a company's existence
• Memorandum of Association contains: Company's name, Address of the registered office, "Objects clause" generally setting out what the purpose of the company will be, Statement of liability, Amount of share capital and how it is divided

  
• Articles of Association


  Governs the running of the company, Acts as a contract between a company and its members (rights of shareholders)
• Articles of Association contains: Details of how and when directors are appointed and the powers and operation of the Board of Directors, Details of how the share capital will be structured and divided into different types of shares which have different rights, Details of how dividends will be distributed amongst shareholders, Details of how shares can be transferred, Details of the rights of shareholders in terms of attendance and voting at company meetings
• Equity / Shares / Stock


  Shares in a firm's ownership
• Stocks first appeared in the 16th century as a way to finance voyages of explorers
• The idea was to spread the risk through joint-stock companies, organizations that issued stock and used the proceeds to finance several expeditions at once
• In exchange for investing, stockholders received a share of the company's profits
• Essential Characteristics of Common Stock

  • Shares were issued in small denominations, allowing investors to buy as little or as much as they wanted
  • Shares were transferable - an owner could sell them to someone else
  • Information is all computerized which is safer and makes it easier to transfer
• Ownership of common stock

  • Stockholder is entitled to participate in the profits of the enterprise
  • Stockholders are entitled to vote at the firm's annual meeting
• Stockholders


  Merely a residual claimant, Paid last, only after all other creditors have been paid, Have limited liability in the firm
• Types of shares


  • Ordinary Shares
  • Preference Shares
• Ordinary Shares


  Company share capital ALWAYS includes ordinary shares, Owners of ordinary shares technically own the company
• Features of Ordinary Shares

  • Can be fully paid, Can be partly paid, Full risk and reward of investing, Entitled to a 'yes' or 'no' vote to each resolution at company meetings, Receive dividends declared by the company
• Preference Shares


  Some companies have preference shares as well as ordinary shares, No voting entitlements, Receive fixed dividends, Paid back before ordinary shareholders if company is wound up
• Types of Preference Shares

  • Cumulative, Non-cumulative, Participating, Convertible, Redeemable