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How do companies get their money from being on the stock market?

I understand the reason a company will list is to raise capital.

Who gives them this money? The stock market is between buyers and sellers themselves right ? So how do companies get their capital?

marked as duplicate by D Stanley, Dheer, NL - Apologize to Monica, JTP - Apologise to Monica Aug 13 at 11:00

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    The company is the first party to sell shares. All other sellers are selling second-hand shares. It is the company's shares after all (ownership in the company). Nobody can force you to give up ownership in your company, house, car etc. unless you sell it – slebetman Aug 13 at 3:58
  • Whose buying the shares from the company? – Jonathan Aug 14 at 12:00
  • You/The public (party). The first buyers buy from the company. Only after the company have sold the shares can people buy form not-the-company. Normally the first sale of the shares is a bit special due to the limited number of shares compared to number of people who want to buy them. The price of the initial sale is not market driven but is pre-determined so depending on the hype surrounding the company may be in high demand due to the perception that they will be in high demand (so that the buyers can turn around and sell them at higher market prices) – slebetman Aug 14 at 13:39
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Being listed publicly doesn't get a company any money. Getting the listing is what does it: the company sells new shares in an Initial Public Offering (IPO), the underwriter takes its cut of the proceeds, and whatever is left goes to the company. The shares are then traded, as you say, among buyers and sellers who hope to profit off of changes in the perceived value of the shares. That's sometimes known as the "secondary market"; that name emphasizes that this trading does not involve the initial sale of the shares.

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The common approach to an IPO is for the company to hire an investment banker (IB) who will underwrite the shares (sell the stock to the public). There may be an associated underwriting syndicate.

The IB analyzes the company to determine its value, prepares a prospectus and distributes it to clients. Some IBs do a road show, promoting the company and attempting to sell large blocks of shares to fund managers and financial institutions. Some shares go to retail clients but that tends to be a smaller percentage.

Near the day of the IPO, share price is set. The company receives the cash, less the mark up, which last I knew was a maximum of 5%. How it's divided depends on whether it was a firm commitment or best efforts agreement.

Once public trading begins, transactions are between buyers and sellers.

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    This doesn't seem to address the question. As far as I understood, the OP was asking "Ok, people buy the stock, but the money goes to the people owning the stock, not the company itself. So how does the company gets the money?" E.g. if bill gates sells a bunch of shares of microsoft for 1B, microsoft does not get any of that money - so how is that different for IPOs? – Ant Aug 12 at 21:14
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    @only_pro I guess the question is why - I found a company, I have 100% of the shares. Then the company goes public, I sell 50% of them in an IPO, I get a bunch of money, the company gets nothing. I know that the company issues shares and sells them (which essentially means shareholders agree to reinvest some of the proceeds of the sale back into the company) but it needs to be clarified - just "company receives cash" is not an answer – Ant Aug 12 at 21:29
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    @Ant An IPO does not convert 100% of existing private shares into public shares. It creates new shares, underwritten by a bank, which the public can then buy. This money goes to the company. That's the point of an IPO—to raise a lot of money for a company quickly. In fact, once the IPO begins, owners of private shares aren't allowed to sell them for a while. – Apologize and reinstate Monica Aug 12 at 21:37
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    @Ant - Your understanding of an IPO is lacking. The company issues stock for an IPO and the cash (less the investment banker's underwriting costs) goes to the company. As noted by ONLY_PRO, private placement shares are restricted and can't be sold at the time of the IPO. Under SEC Rule 144, restricted shares turn into publicly tradable ones after a holding period of six months. After the waiting period, owners receive reissued shares lacking the restrictive legend stamped on their private placement shares. Feel free to write an Answer detailing what you think the IPO process entails. – Bob Baerker Aug 12 at 21:47
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    @Ant. During an IPO the current owner does not get the cash. The company get the cash. Later, the current owner may sell their own shares to the market since there is now a market for shares. You giving up 50% of your shares does not mean you sold those shares. Rather, you are voluntarily giving up those shares (similar to how you take in a partner in a business, you don't sell him his shares, you give him part ownership of the company) – slebetman Aug 13 at 4:03
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The simple answer is: Before "going public", 100% of the company is owned by the company itself and usually some private shareholders (investors). When the company goes public, some of the shares that were owned by the company are sold in the IPO (Initial Public Offering), and become the first publicly traded shares of the now public company.

So your assumption that money changes hands between buyers and sellers is correct, and in this case the corporation itself is the seller and they get the money from the buyers. The price that the buyers pay for these initial shares is determined the old fashioned way.. through negotiation between the corporation, the underwriter, and the investors who are interested in buying the stock. They'll look at the financial statistics of the company and how well it has done so far, and how well they think the company will do going forward.. and settle on a price at which all the shares to be sold in the IPO have a buyer.

Once the IPO is complete, public trading is open and the initial buyers are free to trade the stock between themselves or with others.

From then on, the price is determined by supply and demand, the company no longer has any say in the price of their stock. It's not uncommon for a company to buy back its own stock if the market value of the company is lower than the company feels it should be.. thus effectively investing in their own future.. and they can also sell their own stock if they want to raise additional cash.

Keep in mind that companies do not usually sell all their shares in the IPO therefore they can sell more of themselves to the public if they need cash. That's one reason that companies continue to care about their share price after they've gone public.

  • I had to downvote because of the first sentence - a non-public company doesn't "own itself" - the founders of the company own it. A corporation cannot own itself. Also the last paragraph is misleading - "Companies do not usually sell all their shares in the IPO therefore they can sell more to the public". A company can simply offer new shares if it wants cash later - this is called 'diluting the shareholdings'. There is no need to 'hold back' shares during the IPO, because shares can be created as needed. – Grade 'Eh' Bacon Aug 16 at 13:20

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