When a corporation decides to sell stock in its company, it is called going public or becoming publicly held. When the stock is sold, the investors, or the public, become part owners in the company. Shares of stock are fractional ownership in the company.
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Selling a portion of the corporation as stock raises money for the corporation. This additional capital can be used to grow and expand the business. Going public is often the easiest way to obtain a large amount of money to expand the business. Initially selling stock will also allow the company to raise more capital in the future by selling additional stock.
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Selling stock in a company also allows the founders or owners to realize their value in the company. The value the market puts on the new stock provides a measure of the value of the portion of the company still held by the owners. When Google went public in 2004, the founders, Sergey Brin and Larry Page, sold only a small portion of their shares. But selling the shares made them instant billionaires when the market valued the company at $27 billion.
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Going public and selling shares expose a company to more notice from the public and investors. Publicly traded companies often have more credibility with their customers and business partners. It can be a status boost for the company and the owners and give a local business national exposure.
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Selling shares of stock for the first time makes it easier to raise money in the future. The company and owners can sell more shares to raise capital in the equity markets. Also, it is often easier for a publicly traded corporation to borrow money, either directly from banks or by issuing corporate bonds. For many corporations, selling stock is a necessary step to continued growth. These companies cannot grow their business just from the current profits.
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A further benefit of being publicly traded is the ability to attract quality employees with stock option plans. Stock options enable employees to share in the growth and profits of the corporation. A company that is not publicly traded may have trouble competing for the best new employee prospect.
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