(Second Industrial Period) - What is stock and why do corporations sell stock?This was the time during the Second Industrial Period.
Stock offerings allow ordinary people and the wealthy to invest in what they believe will be good, profitable companies, and hopefully make a profit themselves in the meantime. The advantages of a company "going public", especially in the Second Industrial Period, include being able to finance the establishment or expansion of your company without going through 100% loan financing. You can add production lines, new factories, research and development departments, etc. that will grow the company when you sell stock. Many times, owners will keep much of their own stock offering so that when others invest also, the stock price goes up and they make money from both the company's operations and the sale of stock or stock options.
Stocks are little bits of ownership of a given company. When you buy stock, you are buying yourself a little bit of that company.
The companies sell stock so that they can get more money. If you don't sell stock, you only have whatever money you can scrape up or you can borrow from your friends or family. But if you sell stock, you can get money from all kinds of people to fund your company. So companies today can raise money from people all over the country and the world by selling stock.
Stocks, also called shares, represent the right of ownership in a joint stock company. The joint stock companies are a form of business organization in which the ownership of the company is separated from the function of managing and conducting the business. The company is owned by people who buy shares or stocks issued by the company representing part ownership in the company. In this way the ownership of the company is divided in large number of shares. The number of shares issued by a big company may can run into millions for big companies. For smaller companies these may be as low as a few thousand shares.
The people buying the shares of a company become part owners of the company in proportion of the stocks held by them, and have a right to share the profits of the company in the same proportion. The stockholders do not directly manage the company. They appoint directors to manage the company. The they also take some major decision about management of the company. The right of shareholders in deciding in these matters is also proportional to their shareholding. These decisions are taken by the shareholders based on majority. These decisions are taken in periodic meeting of the shareholders of a company. In normal circumstances such meetings are held once a year.
The shares held by a person or a company can be traded on stock markets at ruling market price. In this way the ownership of the company represented by the stocks also gets transferred with sale and purchase of stocks. The price of the stocks is determined by the current and expected performance of the company as well as by the interplay of demand and supply of their stocks in the market.
Companies or corporation issue or sell stocks to obtain finances for running a business. In this way the investors and shareholders can invest money in a business without need to be involved in the day to day management of the business. Also their liability for loss is limited to the money invested by them in form of shares. Facility of selling and buying shares on the stock market gives the shareholders greater liquidity of their funds invested. Because of all these advantages the corporations can attract a large number of investors to invest in the company, enabling them to obtain large sums of money for major business ventures.