Page 2: What is a company?
On Wednesday July 12, 1989, Abbey National Building Society converted to become Abbey National plc. This case study tells the story of how that conversion came about and shows how, to thrive in today’s competitive financial sector, organisations must have the size and flexibility to operate in a range of related markets.
A company is set up to run a business. It has to be registered before it can start to operate, but once all the paperwork is completed and approved, the company becomes registered as a legal body. The owners of a public company are its shareholders. However, customers and other businesses do not deal with the shareholders on a day to day basis - they deal with ‘the Company’.
Shareholders put funds into the company by buying shares. New shares are often sold at a ‘face value’ (that is, a nominal price) of £1 per share, but this is not always the case. Some shareholders will only have a few hundred pounds’ worth of shares, while others may have thousands of pounds’ worth. See table above.
The shares of a listed public company are bought and sold on the London Stock Exchange. The main advantage of this is that large amounts of capital can be raised very quickly. There is the risk, however, that the original shareholders can lose control of their business if large quantities of shares are purchased as part of a ‘takeover bid’.
To create a listed public company the directors must apply to the London Stock Exchange Council, which will carefully check the company’s accounts. A business which wants to ‘go public’ will then arrange for a merchant bank to handle the paperwork.
Trading in shares has certain risks. The London Stock Exchange has good days, when a lot of people want to buy shares (this is called a ‘bull market’) and bad days, when a lot of people want to sell (this is called a ‘bear market’). If a company issues new shares in a bear market it can find itself in difficulties - for example, if it hopes to raise £1 million, it might want to sell a million shares at £1 each; but on a bad day it might only be able to sell half of its shares at this price.