I don’t understand this. Why would the guy who founds a company float it on the stock market? Surely if he was the sole owner then he would keep all the profits, but when you list on stock market the shareholders own it? Or does the original owner still make a fortune?
That’s what i have nevr understood, why the likes of dell, and mocrosoft which are making billions in profit would want to list on the stock market.
Is it because the original owners (michael dell, and bill gates) still own 51% so 51% of profits go to them?
JONAS
Comments
Easy. To raise capital. That’s why all those companies are on the market. Plus, it gives you good standing with the community because you are allowing them own a piece of your company. Selling shares=more money.
If you sell stock you make money off of this, the person who started the company can get forced out of a company if they open it up to the stock market but over all that normally doesn’t happen. The idea of selling stocks is to gain extra money to use for the company. And everyone who owns stock is in part an owner, so many times the original owner picks to simply not sell more then 49% of the stocks, that way they own 51% all on their own and there for are still the biggest owner.
That’s only a general idea of it however, there’s a lot that goes into stocks.
When a company goes public, the owners can ‘float’ as many shares as they want. The market will value the shares based on the perceived value of the business and the percentage of the company’s stock that is ‘outstanding’.
If I owned all 10,000,000 shares of a private company which had a value of $100,000,000 I might consider going public if I thought that the public market would value the company more highly than in the private market (i.e. more than $10/share).
The stockholders generally only issue a certain percentage of the company, which puts cash in their pocket and depending on the value the public puts on the company, may increase the value of their remaining shares held.
For cold hard cash.
If he sells common stock, as long as he keeps at least 51% of the common stock, he still controls the corporation.
He gets to define what terms the stock is sold. If it is voting shares or not. The company gets the money.
Gee maybe you ought to ask Bill Gates, or Michael Dell that question. Bill Gates #1 on Fortune list 40+ Billon dollars MSFT, Dell well up there DELL just a couple of names to start you thinking. Why list to get capital funds to expand the company and help it grow.
Two reasons. To raise money for the company to grow, and make more money. And to cash out some of their equity. If the company prospers as a result of raising more money by going public the shares the founder still owns become worth more. Bill Gates was worth much more after Microsoft went public than he was before. Its equity that makes you rich.
It ususally goes something like this.
You start a company and if it is successful it grows, growth cost money. Many many companies have failed from lack of cash rather than a poor business idea.
So you go to the start market and list the shares in a IPO. In the if the shares are sold for 100 each the company gets that money, Although they don’t make money from secondary sells, unless they buy back and re sell it, but never mind that.
The owners issue 49% of the companies stock and keep 51%. This gives them control of the company, yet they’ve raised potentially million if not billions.
They can then fund the expansion.
The other main way to raise money it to take on debt, which can be more costly and not always available.
