Why buy shares?
A shareholder is an owner of a business. If you buy an ordinary share you get one vote for each share you hold. If you have 20% of the shares you have 20% ownership of the company and 20% of the votes. However, there are other types of shares that have more or less privileges e.g. some shares do not having voting rights.
By being an owner it means you can influence what the company does (assuming you do have voting rights) and can benefit from its success. One form of reward is dividends. When the company makes a profit the shareholders vote on how much is to be retained (i.e. kept back for investment) and how much is to be paid out to the owners in the form of dividends.
The other way in which owners can benefit is if the value of the company increases. As a company grows your shares (e.g your 20% of the company) become worth more and so your wealth has increased. However, as the adverts and your financial advisers always tell you the price of shares can go down as well as up so buying a share involves risk. That's why investors will look for higher potential returns than they would putting their money in the bank because there is more risk involved.
Many shares in the UK are owned by financial institutions, such as banks and insurance companies . They have their own investors and are buying shares because of the return they provide. This means there is a great deal of pressure on managers to deliver good results. If they do not they may be fired.
For information on share ownership in the UK visit: www.statistics.gov.uk/cci/nugget.asp?id=107
