Why Does a Company Sell Stock?

As you know, a share of a stock represents the ownership of that company. But why would the founders of a company want to share the profits when they could potentially keep it all for themselves? The answer to this question is that every company needs money. It is very costly to start up a major business and there are limited ways in which a company can raise money. They can either borrow money from someone else (usually the bank) or they can sell part of the company to individuals which is known as issuing stock. This is highly beneficial to the company because they don’t have to pay back anyone or make interest payments along the way.

The only downside to the company is that in order to raise this money they are selling ownership of the company and its profits. The hope that the stock holders have is that someday their shares will be worth more than what they bought them for. There is a risk when buying stock because there is no guarantee that you will make money off of your investment. When a private company issues stock for the first time it is known as an Initial Public Offering (IPO). Any company that sells stock is then known as a corporation.

Not all companies sell stock. You won’t be able to find the local restaurant in your small town trading on the NASQAD anytime soon. Companies do this for a number of reasons. An example is that the company just doesn’t need any extra money to start-up. The owner of the local restaurant is able to finance all the start-up costs - staff, building rent, utilities, bills, etc. - all by himself. However, if he wanted to expand his restaurant into a major franchise - i.e. McDonald’s - then the owner would need a lot of money and would have to convince people to buy the stock by proving to the public that his business will be successful. This is very important because no one will invest in a company deemed to fail.

We implement the complexities of the stock market and put them into terms that the average individual can connect with and understand. If you enjoyed this article and would like to learn more about stock related topics then please visit: http://www.erikandjeff.com

Article Source: http://EzineArticles.com/?expert=Erik_Zillner

Ponzi Scheme - What is it & How to Avoid It

Aside from the typical business scams we find today, there are also investment scams that one should be aware of. It is important that one can recognize when they may be taken advantage of by someone who claims they are seeking investments for a business, as this is not always the case. Below is the definition of the Ponzi scheme and how to recognize it and best protect yourself and your money.

Definition:

A Ponzi scheme is an illegitimate investment scam that involves paying investors back from their own pocket, or money that is brought in from future investors instead of money brought in from business revenue. In the 1920’s a man by the name of Charles Ponzi was very well known for using the technique successfully and the scam was named after him although he was not the original creator of it.

Charles Ponzi would pay his investors 50% interest on their original investment and use the remainder for his own personal gains and pleasures. Eventually it became illegal as it is not recognized as a legit business because it works on the “rob-Peter-to-pay-Paul” principle.

How To Spot The Ponzi Scheme And Avoid It:

1. Those utilizing the Ponzi scheme will normally ask for a large sum of cash up front and work to convince you that the return will be given in a relatively short period of time.

2. Never get caught up in the rewards and always think about the risk. If the person working to invest your money is telling you there is no risk, this is not true! High dollar investments always come with the risk of losing your money, don’t be mistaken. If it was really that easy everyone would be doing it.

3. Be aware if the offer seems “Hyped” and to good to be true. Make sure the person looking to invest your money can provide you with the information as to what the business is and how it operates.

4. Ask if your investment money is returned from revenue, or other investors. If your return comes back from other investors then it surely is a “rob-Peter-to-pay-Paul” principle and is illegal!

5. In order for your return to be from revenue there must be some kind of product, or service the business offers. You must ask were the business revenue comes from and verify the product, or services are legit and in place.

For more information on Proven Marketing Strategies, Tips, Tricks and creating a Successful Business, Please visit: http://www.123k-a-day.com/

Article Source: http://EzineArticles.com/?expert=Terry_Anthony_Day