What is a stock market
The main reason of entrepreneurs for selling shares in their companies is to raise funds for growing and expanding their businesses. One of the alternative funding options available to entrepreneurs if sufficient money for expansion cannot be generated from operations, is equity funding. By listing, the company sells a portion of its shares to the public (investors) and in the process receive the necessary funds. Members of the public then becomes part owners of the company.
The advantage with this method is that the company does not have to pay back the money or make interest payments to the shareholder. Shareholders are however entitled to dividends if they are declared and to capital growth if the shares rise in value.
The downside of this method is that the entrepreneur sacrifices control of the company and the more shares issued to the public, the less control the entrepreneur has over his company.
The stock market represents the companies that list equity shares for public investors to buy and sell.
The stock market is the platform on which shares are issued and traded amongst investors, providing an avenue for companies to obtain capital for funding their expansion plans and an opportunity for investors to obtain partial ownership of the company. The stock markets provide an opportunity for investors to participate and to share in the wealth creation of companies without them taking the risk of starting an own business.
The stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital for giving investors a slice of ownership in the company.
The stock market is a market place for companies to raise capital to expand their businesses and shareholding base.