Investing in public limited companies

In the previous discussion, three major ways of investing the funds garnered through savings was identified. They included, running one’s own business as a sole proprietor, combining resources with one or more persons to form a partnership or investing in existing publicly quoted companies through buying of stocks and bonds. In today’s discussion, a closer look is to be taken into public limited companies with a view to understand its peculiarities and advantages over the other forms of business formation. 

Public limited liability companies are usually large corporations, which are viewed from the point of law as “a legal person” composed of one or more natural persons but is separate and distinct from these persons. The owners of public liability companies are called shareholders or stockholders. The funds they invest are called capital stocks, which are sub-divided into shares or equities, which they own in proportion to the amount of money invested.

There is no limitation to the number of shareholders a public company may have, unlike in private companies where the number is pegged at fifty and below. That is why some companies could have as many as one million or even more shareholders in their shareholders’ register. The shareholders elect a board, which in theory manages the company, and are responsible for the running of the company. But in practice, the board chooses some officers who run the affairs of the company on a day-to-day basis.

One major characteristic of public companies and which distinguishes them from private companies is that public companies can offer its shares to the public for subscription while private companies cannot. Again, shareholders of public companies can sell their shares in the company to other willing buyers with ease, while those of private companies do not have such privileges.

The opportunity to sell or transfer the shares of a public limited liability company from one investor to the other is made possible by the existence of a stock exchange in a financial system. A stock exchange, by simple definition is a place where shares/stocks or debt instruments are bought or sold. The Webster’s New World & Investment Dictionary defines stock exchange as a centralized auction market with specific rules, regulations and procedures for buying and of selling financial assets (shares, stocks and bonds).

Public companies are at liberty to have their shares enlisted (quoted) in any exchange of their choice for trading among investors. Those that enlist their shares are the ones that have their shares traded in the exchange where the shares are listed. On the other hand, those that did not enlist do not have their shares traded in an exchange but can only do so through an over – the counter- market (OTC).

Thus the listing of shares in an exchange provides the basis for the classification of public companies. In this regard, there are two types of public companies, namely, public quoted and public non-quoted companies. In Nigeria, there is only one stock exchange, which is the Nigeria Stock Exchange (NSE). Every public quoted company in Nigeria therefore, must be listed on the Nigerian Stock Exchange. Such companies as, First Bank of Nig. Plc, UAC Nig. Plc, Cadbury Nig. Plc, etc all have their shares listed at the Nigerian Stock Exchange, which makes it possible for investors to buy or sell their shares through the stock exchange.

The benefits accruing to investors in publicly quoted companies include:
•    Saving idle funds: Buying shares of quoted companies creates an opportunity for funds, which would otherwise be lying idle or consumed on irrelevant things to be saved, retrieved and used when needed.
•    Income generation: Investing is a veritable source of income generation. Dividends are paid to investors from the profits made by companies in the course of their operations.
•    Capital Appreciation: Share prices of companies could appreciate depending on the performance of the company in the course of their operations. If a company performs very well, investors will expect a high dividend and therefore rush to buy the company’s shares. The high demand will give rise to appreciation of the company’s shares, which is to the advantage of the shareholders.
•    Asset accumulation: Little drops of water, they say, make an ocean. Investments through buying of shares of quoted companies consistently made, no matter how little, with time, accumulate to become a huge chunk. Moreover, some companies could give bonuses, which still add to the quantum of shares held by an investor.
•    Security for the future: Savings has been defined as consumption deferred. Investing, which has been earlier identified as a form of hedging against the inevitable lean times ensures that the future is provided for.

•    Collateral for borrowing: Ownership of shares is accepted as collateral for borrowing by banks and other financial institutions.                                                                                                                                                                                                                                                 
 EPHRAIM AMA MBANASO    
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