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markets maybe toddlers, corporations, or governments. Regardless of their types and sizes, all (with the exception of non-profits) are in it for one reason: profit.Without steady profit a company cannot sustain its operation and growth is retarded. The company perishes. For our purposes we can classify companies under two categories: private and public.

A private company has a specific owner or a group of owners (known as partners) running it. All operation and administration rules are set forth by the owner. The owner has total control of the company and can expand or dissolve the company anytime she chooses. The owner can decide to pocket however much of the company’s profits or use it for expansion. It is all up to her decision. This is of course a simplistic and ideal view of a private company. Many private companies need to raise capital (money) in order to grow. The old adage “it takes money to make money” also holds true in this case. A private company may need this capital for research, marketing, or expansion. In that case it may turn to banks or private investors for financial backing. In return the company may lose part of its independence and the owner may have to include the financial backers in company’s executive decisions.

That is one way a company can raise money. Another way to raise money is to sell debt notes, otherwise known as bonds. We already covered the topic of bonds in a previous chapter.

A third way to raise capital is to go public and sell company’s stock to the public. Unlike a private company that is owned by a specific owner or partners, a public company is owned by the shareholders. Shareholders are people who own stock in the company, hence the name public. Stocks (measured in shares) are basically certificates of ownership in the company. Therefore the shareholders share the company amongst themselves, each one owning a piece of the company …