Stock Market 101: Lesson 2 – Becoming a Publicly Traded Company
Introduction: Trading stocks is basically trading ownership in companies. However, not all companies are traded on the stock market. In order to become a traded company, there are steps that must first be taken.
1) Private vs. Public Companies
When a company first forms, it is a private company and is not traded on the stock market. Eventually, a private company may decide that it wants to become a publicly traded company. In order to do this, they must issue stock certificates.
2) Going Public
When a company decides to “go public” by selling shares (stock) to investors,they have an Initial Public Offering (IPO) to sell shares. The number and price of shares issued varies with each IPO.
3) Why or why not?
Why would a company decide to go public?Well the biggest reason is because they get all that money from selling shares. This has two benefits – it increases the financial base of the company and gives them money to expand the business.
So if companies get $$, why wouldn’t they go public?There are many reasons but one big one is that as soon as a company becomes public they have to answer to a lot of different investors and regulators. More on this later.
Definitions-
Private company: one that does not offer stock to the general public.
Public company: one that has issued stock for purchase by the general public.
Shares (stocks): Certificates representing part ownership of a company.
Initial Public Offering (IPO): Process where a company first sells shares of stock to the public.
Wrap-up: In order for a company to be traded on the stock market, it must first issue (sell) shares in the company to investors. They do this by having an IPO. The money received from this is reinvested into the company, increasing financial stability and allowing them to expand their services/products.