Why do companies issue shares?
Why do companies issue shares?
The reasons behind why a company issue stock, is to generate funds for:
- Raising Capital: The company is started by the money invested by promoters and founders but when they need additional capital they typically turn to equity.
- Expansion: Company issues stock it raises money that it can use to expand its business. For instance, when a company decides to expand into a new market or region or a company might build a new factory. As a result, the business becomes more profitable.
- Benefits over Debt financing: In debt financing companies need to return the principal capital after a certain period of time with annual interest payable on it. Unlike debt, equity does not require repayment and therefore does not stress a company’s cash flow and balance sheet.
