15.5 Borrowing For a Stable and Mature Business: Selling Stock
In Chapter 7, you saw that when a company sells common stock to the public, it is raising funds by selling part of the firm’s ownership rights. The common stockholders become owners, have voting rights, and receive a distribution of the company’s earnings when it declares and pays dividends. The process of selling stock for the first time is called the initial public offering (IPO), which the SEC and the 1933 Securities Act govern.
Stock ownership has its advantages and disadvantages. Owners enjoy the firm’s success through a rise in the stock share price and received dividends, but they also bear the risk of poor company performance. We base performance not solely on company managers’ ...
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