What are stocks, and why do companies issue them?
Stocks (also known as shares or equities) represent ownership in a company. When you buy stock, you own a small portion of that company.
As a stockholder, you have a claim on the company’s assets and earnings, usually through dividends (a portion of profits distributed to shareholders).
Companies issue stocks to raise capital for various purposes:
- Funding Growth: Companies use the money raised from issuing stocks to expand operations, develop new products, or enter new markets.
- No Repayment Obligation: Unlike loans, companies don’t need to repay the money raised from issuing stocks. There is no fixed interest or repayment schedule.
- Attracting Investors: Issuing stocks brings in new investors, who can provide not just money but also expertise and credibility to the company.
By issuing stocks, companies can raise the funds they need to grow and thrive without taking on the burden of debt.
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