Shareholders Affects the Business

How Shareholders Affect a Business When They Want to Expand

Shareholders are the owners of a limited company or a corporation. If a company issues its shares at $10 each, and later on you buy 1 share on the open market at $12 you will be paying a share premium of $2. Shareholders have wide powers to affect the growth of a publicly traded corporation through mergers and acquisitions of other companies. Corporate officers must address shareholders concerns and questions throughout the expansion process to assure these investors of the strength of the company's business direction. Shareholders believing expansion efforts to be an unwise decision can exercise voting rights or even file suit against the corporation to slow or halt the board's efforts.
Shareholders have voting power when it comes to making big decisions for the corporation, including expansion via company buyout. This is a merger that occurs when a larger company buys a competitor and absorbs it into the greater organization. Shareholders have the power to vote to approve or deny such a merger. If the shareholders vote down the acquisition, the corporation cannot legally continue steps to fulfill the merger. To sway shareholders, corporate officers often disseminate information relating to the proposed merger, including how the acquisition will strengthen the corporation and provide a greater share of the profits for investors.

One the biggest mergers in recent years are the mergers of British Airlines and Iberia Airlines (December 2010). The company will have its headquarters in London, with BA shareholders retaining 55% ownership of the company. The merger is seen as a chance for the two airlines to cut costs following two very tough years for the airline industry. Both BA and Iberia are expected to report heavy losses this year, with BA predicted to announce its biggest annual loss since privatisation.

The problem can arise when one company have more than 51% of the shares because they might want to appoint their people on the top jobs. This actually happened in the case of British Airways and Iberia Airlines. Because according to the Spanish they want to cancel this merger. Strike action is being threatened by workers at Iberia in protest against restructuring which will lead to 4,500 job losses. “It’s not fair and it’s not the way things were supposed to be. The merger was supposed to bring growth for both companies and benefits for workers of both airlines,” Sepla head Justo Peral told the Daily Telegraph.

The Spanish carrier’s chief executive Rafael Sánchez-Lozano said: “Iberia is in a fight for survival. It is unprofitable in all markets. Unless we take radical action to introduce permanent structural change, the future for the airline is bleak.”

                                                                                                      
Shareholders are the risk takers and there are lots of the business risks in expanding the business such as:

Market Risks: Risks arising from sudden or unexpected changes in the company’s market.  E.g. increase competition, price wars, and new products.

Economic Risks: this is the risk caused by the economic situation of the country. Which might result in changes anticipated levels of inflation.

The primary objectives of all the companies are to maximise the Revenue and sales this can increase the profit margin. The main objective for the firm which is owned by the shareholders is market share dominance. They want the profit maximization this leads to the increase in the share price. This can increase the company’s reputation and make it big.