Previous

Page - 2

Why Companies Issue Stock

Businesses issue stock to raise money. They use this money to finance expansions, pay for equipment, and fund projects, etc. Corporations issue stock when they may need additional capital to operate successfully.

The term for issuing stock to raise money is equity financing. The money received from investors who buy stocks is called equity capital. In the world of securities, the word "equity" usually refers to stocks. The other method of raising money is debt financing, which involves selling bonds.

When companies make profits, they may reward their stockholders with pieces of their profits, known as dividends. Dividends are an incentive for investors to hold stocks.

Businesses issue stock to raise capital.

Advantages for Issuing Stock

1. A Company can raise more capital than it could borrow.
2. A Company does not have to make periodic interest payments to creditors.
3. A Company does not have to make principal payments.

Advantages for Stock Holders

As part owner of a corporation, you may be entitled to share in the profits of the company. There is also a chance that the company will grow and the price of the stock may rise.

Capital

All the money that you invest to start your business is called capital. Essentially, the capital of a business consists of all of its assets (or items to assist in the creation of wealth).

• «Previous
• 1
• 2
• 3
• 4
• 5
• 6
• Next »

* Contributed by: -
Prof. M. Guruprasad is Senior Faculty for Economics, Finance and Research, with AICAR Business School Raigad / Mumbai. He has more than 15 years of experience in research and educating / training management students. He was research scholar with the University of Mumbai. Worked as Executive in the Marketing research industry. Also Conducted Workshops and Training programmes. He has published articles in various industry magazines, newspapers and has initiated many discussions on academics.