One of the most popular ways for companies to raise money is by issuing stock to the public. When a company issues stock, it sells shares to the public and the shareholders become partial owners of the company.
What is a Stock?
A stock is a fractional ownership in a company. A person who owns a stock actually owns part of the company.
Issuing Stock in a Company
When a company issues stock, it is selling all or part of the company to investors. The investors pay the company for each share of stock in exchange for a fractional ownership stake in the company. A new stock issuance is typically called an initial public offering, or IPO.
Why Do Companies Issue Stock?
Companies issue stock to raise money. They use this money to expand their business, buy out competitors and pay for daily operating expenses.
When a company issues stock, it must meet certain requirements set by the United States Securities and Exchange Commission. The requirements include providing investors with financial reports and holding shareholder meetings. These requirements are in place to protect the shareholders and to provide transparency so all shareholders and potential investors can make informed investing decisions.
After stock shares are initially issued by the company, the shares will trade on a stock exchange, where investors can buy and sell the shares.