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I'm trying to understand stocks. My current view is the following.

Assume I have a company and I need money to expand my business. Instead of taking a loan I give people the opportunity to buy a fraction of my company. When buying a fraction one gets voting power in proportion to the amount of shares one owns (I know this could vary but let's keep it simple and focus on the gist of it) and certificate (maybe inaccurate word choice) that says "you own X amount of this company" and this certificate has some value that is determined by the current supply and demand (except in the initial release of shares).

Now, I was the one who decided how many shares were declared and to what price they were initially sold at. Let's assume all shares were successfully sold, now the shareholders are free to sell the shares at lower or higher price and then the market will continue on its own. Here comes my trouble to understand and my question. The company only received money from the initial selling of shares and will never receive money from the shares again? Also the value of the shares is completely independent from the amount of money the company has and how the company performs? I know that a prosperous company correlates with increased value of share but it does not necessarily need to increase also the other way around does not need to decease when a company loses money. It is as the company and stock are two completely different identities with some vague connection which is the "certificate".

In short, does a company only profit from becoming a stock in the initial release of shares?

P.S. I'm not looking for some vague answer that a company can profit by the majority of shareholders voting and running the company which in turn produces revenue.

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  • A company NEVER profits from issuing stock.
    – JohnFx
    Commented Mar 30, 2022 at 23:33
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    Does this answer your question? Why would a company care about the price of its own shares in the stock market?
    – yoozer8
    Commented Mar 31, 2022 at 2:44
  • @yoozer8 Related but does not answer this question.
    – ludz
    Commented Mar 31, 2022 at 9:30
  • @JohnFx Care to elaborate? The answer from @D Stanley seems to disagree with your statement?
    – ludz
    Commented Mar 31, 2022 at 9:34
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    @ludz When a company issues stock, cash increases and equity increases in the balance sheet. Nothing changes in the profit and loss statement. Hence, a company does not profit from issuing stock. However, the company can then use the influx of cash to do things that generate profit (see the "To be pedantic ..." part in D Stanley's answer).
    – Flux
    Commented Mar 31, 2022 at 9:58

2 Answers 2

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Now, I was the one who decided how many shares were declared and to what price they were initially sold at.

No - you can decide how many shares to sell, but only the buyers can decide what they're willing to pay for them. When a company 'goes public", the underwriters gauge how much the market is willing to pay and price the shares accordingly. Sometimes they're wrong and the price moves dramatically in the first few days of trading.

The company only received money from the initial selling of shares and will never receive money from the shares again?

Correct

Also the value of the shares is completely independent from the amount of money the company has and how the company performs?

Wrong. The value of the share is generally the current value of the future profits of the company (with notable exceptions like short squeezes), whether that is returned as dividends or through an eventual merger, acquisition, or liquidation. A company can be losing money now, but if it has the potential to make money in the future, owning a share of that future profit has value. There are lots of questions on this site about the value of stocks for companies that pay dividends or not; I'd suggest reading some of those answers and see if that helps your understanding.

does a company only profit from becoming a stock in the initial release of shares?

To be pedantic - a company does not "profit" even from the initial sale of shares - they're giving up partial ownership in exchange for that influx of cash that is then used to buy assets or do other things that will then make profits.

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    Just to be clear for the OP, the shares aren't GUARANTEED to go up or down when the company makes or loses money, as the company performance and shares are not directly related. See gamestop as an example Commented Mar 31, 2022 at 0:09
  • @publicwireless I share your view (which you seem me arguing in the " Also the value of the shares is completely independent [...]". However it seems like DStanely view it differently since " 'Also the value of the shares is completely independent [...]' Wrong ".
    – ludz
    Commented Mar 31, 2022 at 9:39
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    There's a middle ground between "completely independent" and "completely dependent". GME and other "short squeezes" are definitely exceptions, but share price generally reflects the markets opinion on future performance. But its's a fair point and I've clarified that in my answer.
    – D Stanley
    Commented Mar 31, 2022 at 13:42
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The answer to your question is in the word itself:

share /SHer/

noun: share; plural noun: shares

1.
a part or portion of a larger amount which is divided among a number of people, or to which a number of people contribute.

By buying a share, the investor buys a part of the company. Whoever sells the share gets the proceeds. If the company is the one selling - the company gets the proceeds. If an investor is selling to another investor - that first investor gets the proceeds.

So no, the company gets no money beyond the proceeds it gets when it (the company) sells the share to the first investor. The companies occasionally buy shares back from investors and can potentially sell them again or issue more shares to raise more capital.

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