Companies get listed to raise cash for business expansion. In doing so, the company has to share its future profits with the shareholders. Theoretically, shareholders are owners of the business. They bought into the shares because they believe the business would make money in the future and profits can be shared proportionately to the percentage of ownership.

It is important to note that the company only receives the money during Initial Public Offering. The company does not collect money from daily transactions of it’s shares. All these buying and selling of shares does not benefit the company per se. The ones who benefit are the brokers and financial institutions, who earn commissions in the process. The company can continue to raise money by issuing more shares or borrow more money. Logically, the management would choose the cheapest way to raise cash.

The stock exchange serves as a platform to facilitate shareholders to sell their shares to potential shareholders. The selling maybe due to different reasons. The original shareholders may need to raise cash for their needs or they may think the company is not going to do well in the future. They may also be due to speculative reasons, trying to cash in on price differences.

 

 

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