Why Companies Issue Stock
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Companies issue stock as a way to finance business operations. Issuing stock provides financing for the company in a major way while protecting founders from legal liability. However, issuing stock means giving up full ownership and control of the company, requiring financial disclosures, and needing shareholder approval for major decisions. Founders can even be terminated from the business they started.
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Why Companies Issue Stock
- 1. Why Companies Issue Stock? Pros and Cons
- 2. If you were to ever start a business, then you would structure your business as a: • Sole Proprietorship • Corporation • LLC or Limited Liability Company There are other types of business structures and variations of these three. We will focus on corporate structure because stock is issued by corporations.
- 3. Regardless of what business structure you choose, you will have to finance that business. Without capital, cash, funds, MONEY….NO BUSINESS CAN SURVIVE.
- 4. SO HOW CAN YOU FINANCE YOUR BUSINESS START-UP?
- 5. Ways to Finance (Raise Money for) a Business: 1) You could use your personal savings. 2) You could get a loan from your friends and family. 3) You can get a loan from the bank. 4) You could find an angel investor. 5) You could issue stock.
- 6. THERE ARE ADVANTAGES AND DISADVANTAGES OF ISSUING STOCK
- 7. Advantages of Companies Issuing Stock 1. The operation will be financed, usually in a big way. 2. The company founders will not be personally liable for any legal claims or misfortunes that take place operating the business.
- 8. Disadvantages of Companies Issuing Stock 1. Once you incorporate your business and your stock is publicly traded, your business will have to disclose all financial and business operating statements. 2. You give up full control or ownership interest in the start-up/business. 3. Since you give up full control or ownership interest you can be terminated from the very business you started. 4. Major business decisions will have to be approved by shareholders.
- 9. In Summary Companies issue stock to finance business operations. When stock is issued the founders give up ownership interest and full control of the company. The founder can be terminated. Major business decisions will have to be approved by stockholders or shareholders.