Revealed: Why public companies want to sell shares via a stock market

Muhasebekulubu.biz.tr, 31 Jul. 2013

Tags: public companies, sell shares, shares, stock market, why do public companies want to sell shares, why do companies want to list on a stock exchange,



When it comes to shares and stock markets, the firms you’ll deal with the most are public companies. Read on to uncover why public firms want to sell shares…



When it comes to the stock market, the shares available to buy are in public companies.

These firms often raise capital by inviting the public (you and me) to subscribe for shares. They’re not limited to a maximum number of shareholders, but they must have at least seven!

In South Africa, public companies list on Johannesburg Stock Exchange (JSE). And these firms can have millions upon millions of shares (and shareholders).
 
As a private investor, you can buy and sell shares in public companies that list on the JSE, explains Gareth Stokes in Fear, Greed and the Stock Market.

When you buy shares, you become a part owner of the company that issued the shares.

Why on earth does a company want to list on a stock exchange?

Companies need to look for ways to get funds for acquisitions and capital intensive projects.

To get these funds, there are many ways a firm might go about it. The first (and perhaps the most obvious) is for the firm to go to its bank and obtain a long-term loan.

But bank loans are costly so this forces companies to be more creative.

Some firms will try and fund their expansion plans by the issue of corporate bonds. They can issue bonds to institutions and private investors, but these bonds are no better than a bank loan.

They’re simply another form of debt finance.

And that’s when a company looks to the capital (or equity) market for funds. They offer up the firm to financial institutions and private investors.

In other words, the company elects to sell shares (or part ownership in the company) to private and other investors...

The companies then use the money raised by this public offer to pursue various capital intensive projects without the burden of extra interest charges.

Shares (apart from preference shares) don’t cost the company any extra amount in interest payments.

When companies list to raise money, the only costs are the admin costs to set up the initial issue and the costs to maintain the listing.

So there you have it, why public companies want to sell shares through a stock exchange.


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