Nija

I mean why do companies issue stocks?

what are the advantages of going public vs. staying privately owned?

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LegendKiller

Access to the secondary market provides greater noteriety along with cheaper access to funds.

LK

Nija

So, when someone trades their stocks, the company gets a portion of that?

VTGreg

Stocks are a way for companies to raise cash.

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zippyjuan

Companies who want to raise money, whether that is for investing in R&D or physical assets or to expand or for whatever purpose, can either borrow from banks or other financial institutions or they can issue stocks, which represent a "share" in ownership of the company. These shares are issued at an initial price, based on how much the company wants to raise and the assets they use to back up the shares (what percent of the total company value) divided by the number of shares they wish to issue. The initial offering is usually purchased by banks or financial institutions who basically guarantee the value of the shares and then they try to resell them at a higher price to recover their costs. The company only gets money from the initial sale of shares. They may decide to either retain some of those shares or repurchase some of them later on the open market. Once the initial offering is sold, these shares can change hands in a market where there is an offer to buy and an offer to sell at an agreeable price. If a buyer believes that the company is or will be worth more in the future, then they may be willing to pay a price higher than the actual value of the stock as measures as a percentage of the total company value. More people wanting the stock (higher demand) with fewer people willing to give up their shares will drive up the price of the shares. Conversely, if there are alot of people trying to sell their shares and nobody wants to buy them, the price will drop. The company does not recieve any money from these trades of their shares- only the initial offering.

There can be many different classes of shares which may have viting rights for the board of directors or perhaps pay a dividend. A dividend is a company returning some of its profits in the form of a cash payment to share holders rather than using that money to reinvest in the company.

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Merlin

There are pretty much two reasons for a private company to go public. The first is liquidity. If you own a company you may have your total net worth tied up in that company. Should you want to pull that money out going public offers the most convienent way to do this. The other reason is as has been stated before - to raise money. If the company wants to do something major like expand and need to fund that expansion, taking on new partners might be the best way to do it. And yes, selling shares is in effect taking on partners. And there is a third reason. If the company attempts to retain employees by giving them shares they will need a public market for those shares. This third reason is typically not enough to make the decision alone.

In the end companies need to make sure they need to go public before doing so. The cost of going public is fairly high (although most companies are worth more when public thanks to the liquidity) and more importantly the cost of being public is high. That is you now need to have an entire department to do SEC filings and respond to investor requests. You will also need to have quarterly releases to update the market. Et. Cet. And of course you are no longer in control of your company.

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RoniMan

ahhh...the wonders of the internet....

enjoy!