Page 3: Types of organisation and growth
FTSE produces many different global indices of company shares e.g. by region or by industrial sector. Companies included in these indices are public companies - their shares can be traded on a stock exchange. The origins of the public company may have been as a sole trader. As they grow, sole traders may incorporate to become private limited companies.
Incorporation gives owners limited liability. If the company cannot pay its debts from its own funds, creditors cannot force the owners to repay the money from their personal funds. Owners of private companies may eventually decide to 'go public' and arrange a public issue of shares in order to raise large-scale funds for the company to continue its growth. Once issued, these shares can be traded on a stock exchange.
In these public companies, shareholders' liability is also limited; they stand to lose only the sum they have invested in shares. Shareholders can monitor the performance of their investment against benchmarks like the FTSE 100.
The process of business growth is essential to a dynamic modern economy. Small businesses are the most numerous within the UK economy, but it is the large public companies (owned by shareholders) that employ the highest percentage of employees in the UK and who make, by far, the largest contribution to national output. By offering shares to the general public, these companies can fund their growth.