Chapter 8

Stocks and Shares

Learning objectives:
By the end of this chapter, the students are able to:
1. Comprehend an English reading passage related to economy.
2. Understand the basic structure and elements of a good paragraph.
3. Identify the elements of each paragraph in some academic readings.

A. Reading comprehension
Individuals and groups of people doing business as a partnership, have
unlimited liability for debts, unless they formed a limited company. If the
business does badly and cannot pay its debts, any creditor can have it
declared bankrupt. The unsuccessful business people may have to sell
nearly all their possessions in order to pay their debts. This is why most
people doing business form limited companies. A limited company is a legal
entity separate from its owners, and is only liable for the amount of capital
that has been invested in it. If a limited company goes bankrupt, it is wound
up and its assets are liquidated (i.e. sold) to pay the debts. If the assets do
not cover the liabilities or the debts, they remain unpaid. The creditors simply
do not get all their money back.
Most companies begin as private limited companies. Their owners have
to put up the capital themselves, or borrow from friends or a bank, perhaps a
bank specializing in venture capital. The founders have to write a
Memorandum of Association or a Certificate of Incorporation, which states
the company’s name, its purpose, its registered office or premises, and the
amount of authorized share capital. They also write Articles of Association or
Bylaws, which set out the duties of directors and the rights of shareholders
or stockholders. They send these documents to the registrar of companies.
A successful, growing company can apply to a stock exchange to
become a public limited company or a listed company. Newer and smaller
companies usually join ‘over-the-counter’ markets, such as the Alternative
Investment Market in London or Nasdaq in New York. Very successful
business can apply to be quoted or listed (i.e. to have their shares traded) or
major stock exchanges. Publicly quoted companies have to fulfill a large
number of requirements, including sending their shareholders an
independently audited report every year, containing the year’s trading results
and a statement of their financial position.
The act of issuing shares or stocks for the first tome is known as floating
a company (making a flotation). Companies generally use an investment
bank to underwrite the issue, i.e. to guarantee to purchase all the securities
at an agreed price on a certain day, if they cannot be sold to the public.
Company wishing to raise more money for expansion can sometimes
issue new shares, which are normally offered first to existing shareholders at
less than their market price. This is known as a rights issue. Companies
sometimes also choose to capitalize part of their profit, i.e. turn it into capital,
 by issuing new shares to shareholders instead of paying dividends. This is
known as a bonus issue.
Buying a share gives its holder part of the ownership of a company.
Shares generally entitle their owners to vote at a company’s Annual General
Meeting or Annual Meeting of Stockholders, and to receive a proportion of
distribution profits in the form of a dividend – or to receive part of the
company’s residual value if it goes into liquidation. Shareholders can sell their
shares on the secondary market at any time, but the market price of a share
– the price quoted at any given time on the stock exchange, which reflects
(more or less) how well or badly the company is doing – may differ radically
from its normal value (MacKenzie, 2002, p. 91).
Answer following questions based above passage.
1. Why do people form limited companies?
2. Why do companies issue shares?
3. Why do people buy the shares?
4. What is limited company and public limited company?
5. What are the contents of Memorandum of Association?

B. Vocabulary
Fill in the incomplete sentences following with correct word below.
a. blue chip b. defensive stock c. growth stock
d. insider share-lending e. institutional investors f. mutual fund
g. market-maker h. portfolio i. stockbroker

1. a company that spreads investor’s capital over a variety of securities.

2. an investor’s selection of securities.
3. a person who can advise investors and buy and sell shares for them.
4. a stock in a large company or corporation that is considered to be a
secure investment.
5. a stock – in an industry not much affected by cyclical trends – that
offers a good return but only a limited chance of a rise or decline in
price.
6. a stock – which usually has a high purchasing price and a low current
rate of return – that is expected to appreciate in capital value.
7. a wholesaler in stocks and shares who deals with brokers.
8. financial organizations such as pension funds and insurance
companies which own most of the shares of all leading companies
(over 60%, and rising).
9. the use of information not known to the public to make a profit out of
buying or selling shares.

C. Language focus
Paragraph structure
A paragraph consists of a series of sentences with a single topic. One
sentence in the paragraph may state the topic, and the other sentences tell
more about the topic. Paragraphs typically have a specific organization
structure containing three main parts: topic sentence, supporting sentence,
and concluding sentence.
1. Topic sentence
Topic sentence is a sentence which tells what the paragraph is
about. It provides the most general statement of the paragraph. Topic
sentence is a complete sentence and may appear at the beginning, in the
middle, or at the end of a paragraph. For academic purpose, topic
sentence is usually written in the first sentence of a paragraph.
The following sentences are some other examples of topic
sentences. The underlined words show the topic while the highlighted
words are the controlling idea of the topic.

The Indonesian economic crisis in 1998 is caused by some conditions.

The Indonesian Micro-Small and Medium Enterprises SMEs have played

their important roles in increasing the country’s income.

2. Supporting sentences
Topic sentence is followed by supporting sentences which develop
the topic sentence by giving specific details, explanation, or example
about the topic.
a. Details
Developing the main idea of a paragraph by giving details means
that you write information in a form of specific points or fact telling more
about a general statement.
Example:

Our new brand-new Melbolta camera bag is not just an attractive case.
Behind the highly sophisticated good looks is a bag that will protect your
camera for years. Melbolta camera bags are made from water resistant
Coralon (found on the inside of the car tyres) and nylon which is so strong
that is used in bullet proof vests for the army. Every detail has been
professionally engineered to provide years of active protection. All stress
points are reinforced and all pockets and walls are fully padded. The
fasteners are designed with a quick-release system so you won’t miss
that important photo opportunity while trying to get the camera out of the
bag. We are so sure of Melbolta reliability that each bag comes with a full
five-year guarantee (Strutt, 1998. p.28).

From that paragraph, it is clear that the main idea of the paragraph
is a camera bag, Melbota, which is not just an attractive case. The main
idea is supported by some detailed information such as quick release
protection system, five-year guarantee, water-resistant Coralon,
reinforced stress points, and protective padding.

b. Explanation
 Another method to develop a paragraph is by giving an
explanation. This method can be used to tell the readers the definition or
the meaning of something or how something works.
Example:

Free market is a summary tern for a set of exchanges that take place in
society. Each exchange is undertaken as a voluntary agreement between
two people or between groups of people represented by agents. These
two individuals (or agents) exchange two economic goods, either tangible
commodities or nontangible services. Thus, when I buy a newspaper
from a news-dealer for fifty cents, the news-dealer and I exchange two
commodities: I give up fifty cents, and the news-dealer gives up the
newspaper. Or if I work for a corporation, I exchange my labor services,
in a mutually agreed way, for a monetary salary; here the corporation is
represented by a manager (an agent) with the authority to hire (Nəbiyeva
et al., 2010, p.26).

c. Example
The last method to develop a paragraph is by giving an example
which is a specific person, place, thing, or event supporting the idea or
statement.
Example:

Goods are products that people either need or want; for example, cars
can be classified as goods. Services, on the other hand, are activities that
a person or group perform for another person or organization. For
example, an auto mechanic performs a service when he repairs a car. A
barber renders a service when he cuts your hair (Nəbiyeva et al., 2010,
p.81).

3. Concluding sentence
The final sentence of a paragraph is called concluding sentence.
It sums up the main points or restates the main idea in a different way to
remind the readers of what the writer’s main idea and supporting points
were. In other words, it restates the main idea which should give the
same information in a slightly different way, perhaps by using different
words or by using different word order. It may use linking words that
indicate that conclusion is being drawn, such as therefore, thus, or hence.
A concluding sentence should not introduce a new point. While not all
paragraphs include a concluding sentence, you should always consider
whether one is appropriate.
Example:

Advances in technology often have the effect of lowering the costs of

production, allowing suppliers to supply more goods at all prices. For
example, the development of pesticides has reduced the amount of
damage done to certain crops and therefore has reduced the cost of
 farming. Hence, the result has been an increase in the supply of these
crops at all prices(Nəbiyeva et al., 2010, p.110).

Model paragraph:

Topic Producers need to apply certain strategy to decide the

sentence brand name for their products. [Some manufacturers
use their name (the ‘family name’) for all their
products, e.g. Phillips, Colgate, Yamaha. Others,
Body including Unilever and Procter & Gamble, market
various products under individual brand names, with
the result that many customers are unfamiliar with the
name of the manufacturing company. The major
producers of soap powders, for example, are famous
for their multi-brand strategy which allows them to
compete in various market segments, and to fill shelf
space in shops, thereby leaving less room for
competitors. It also gives them a greater chance of
getting some of the custom of the brand-switchers.]
Concluding Hence, it is necessary for producers to consider a
sentence strategy to choose brand name for their products.

D. Exercises
Write your personal information into a good paragraph (500-700 words).
The personal information must include the following paragraphs:
1. Introduction: name, age, address, family’s members, and interest
2. Content: educational background, organization, achievements, and
characteristics of yourself
3. Conclusion: hope and dream during university and after graduated.