How Companies Raise Money by Selling Stock

Companies need money to grow: to build factories, hire people, or develop new products. One way to raise that money is by selling ownership stakes to investors instead of borrowing it. This is fundamentally different from a loan — the company doesn't have to repay it on a schedule or pay interest. Investors get a share of the company instead of a promise of repayment.

The first time a company sells shares to the public is called an Initial Public Offering (IPO). Before an IPO, a company is "private," owned by its founders, employees, and maybe a few early investors. Going public means listing shares on a stock exchange so anyone can buy and sell them, in exchange for a large one-time injection of cash the company can use to grow.

After the IPO, most day-to-day buying and selling of that stock happens between investors, not between the company and investors. Only the original IPO sale, and any later new share sales, actually hand cash to the company. When you buy shares on an exchange today, your money usually goes to whichever investor sold you those shares, not to the company itself.

The first time a company sells shares to the public is called an ____.

When you buy shares of a company on a stock exchange today, long after its IPO, where does your money typically go?

Selling stock obligates a company to pay that money back on a fixed schedule, like a loan.