Stocks (shares) are offered to enable a company, that is in need of long-term financing, to sell stocks in order to exchange for cash. This is the main method of raising business capital. The other is bonds.
When the corporations issue these stocks they are said to be publicly held. An IPO is an initial public offering—the first time stocks are issued.
If you own shares of a company you may be entitled to vote, receive dividends, right to sell, liquidity or residual rights.
So how do short sellers make money? Well, they are betting that the stock they sell will drop in price. If the stock drops, the short sellers buy back the stock at a lower price and return it to the lender. For example, if an investor thinks Ben's Bowling Business (BBB) is overvalued at $25 and is going to drop in price, he or she may borrow the stock and sell it for the $25. If the stock goes down to $20, the investor, after buying it off the TSX, and returning it, would make $5 per share. However, if the stock went up to $30, the investor would be at a loss of $5 per share.