Why does a company issue stock ?
Debt vs. Equity
Why does a company issue stock ? Why would the founders share the profits with thousands of people when they could keep profits to themselves ?
The reason is that at some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock.
A company can borrow by taking a loan from a bank or by issuing bonds (Debenture).
Both methods fit under the umbrella of "Dept Financing".
On the other hand, issuing stock is called "Equity Financing". Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in returns for their money is the hope that the shares will some day is worth more. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).
Debt vs. Equity
Why does a company issue stock ? Why would the founders share the profits with thousands of people when they could keep profits to themselves ?
The reason is that at some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock.
A company can borrow by taking a loan from a bank or by issuing bonds (Debenture).
Both methods fit under the umbrella of "Dept Financing".
On the other hand, issuing stock is called "Equity Financing". Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in returns for their money is the hope that the shares will some day is worth more. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).
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