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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 …
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