You may have noticed that many of the large companies have the letters ‘plc’ after their names. This stands for “public limited company” although the word “public”doesn’t mean that they are owned by the government—on the contrary it means that anyone can buy them—through the mechanism of buying shares.

You might think that people who own shares are all very wealthy clever and sophisticated people. But actually anyone can buy shares, you really don’t even need very much money and there are millions of people in Britain who do so. It is also true that whilst someone might tell you that they have never bought shares in their life many people in Britain own them indirectly without knowing it, through pension schemes or other investments.

Every shareholder in a company is one of its owners. This doesn’t mean that they can walk into one of the companies shops and demand goods or money out of the till. PLCs have their own legal identity which is separate from their owners which means that their accounts are entirely independent.

If you happen to know someone who own shares then even if they have tens of thousands of pounds invested, the proportion of the company they own is usually so small as to be almost insignificant. Big companies are worth hundreds of millions. That being the case you might ask why people bother to buy shares at all. Of course the answer is that they represent a financial investment and that as part owners in a company shareholders are entitled to a share of the profits.

Even though it is the shareholders who own the company key decisions are made by company directors, who are appointed to run the company on behalf of its owners. This illustrates a critical distinction between ownership and control. In practice small shareholders have no control unless they are able to group together with large numbers of other shareholders, but what usually happens is that the big shareholders, often pension funds or investment companies, exercise the real power behind the scenes. Of course in most cases we would expect the owners and the managers in a company to share the same objectives of increasing market share and profits. As a company grows the managers and directors can reasonably expect to earn higher salaries and the profits will increase. Even more significantly alongside growing profitability shares increase in demand and go up in value. If a company begins life with 100 shareholders each having £100 worth of shares then the company is worth £10,000. If the company does well the market and investors believe that the company is now worth £20,000 then each of those shares will then be worth £200.

Looking into the future and gambling on which companies will grow in value requires a magical combination of foresight and luck. Many investors buy shares in companies that they believe will increase in value only to learn the hard way that markets are unpredictable.

To avoid volatile share movements many investors bundle their investments together and to use a share management service, such as a Unit Trust, who deal on behalf of many investors and who can spread the risks.

In theory a company’s ability to make money underlies its share price, but often and especially with technology companies, investors take long term bets that unprofitable companies will eventually come good. Amazon is worth $138 billion and yet only made its first profit last year; other companies with similar stories include Twitter, Snapchat and Sony who have made significant losses for each of the last 7 years.

When a company decides to sell shares for the first time it is said to have “floated” on the stock exchange. Usually the original owners retain the largest proportion of shares, but by selling they are cashing in on the rewards of their work: effectively they are selling the rights to a share of future profits but provided that they sell less than 50% of the company they can still retain overall control.

The mechanism for “floating” a company first requires a valuation figure – rather like an estate agent valuing a house. Once it is decided how many shares they will be issue and the value of each share is thus determined.

Once shares have been sold, new owners may sell or hold on to them irrespective of the wishes of the company. Money made or lost by shareholders is entirely independent of the company itself.

Remember that the company is not only owned by all its shareholders but that it has an entirely separate legal and financial existence to the individuals who own it. And by virtue of the “limited” status of the company, responsibilities and risks of shareholders are limited to the value of their shares—and no more.