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📝 Why Do Companies Issue Shares?

💼 Why Do Companies Issue Shares? A Simple Guide for Beginners When a company wants to grow, it needs money — a lot of it. To raise this money, companies have two options: Take a loan from the bank (which must be repaid with interest) Raise money from the public by issuing shares Most companies choose option 2 — because it's a faster, cheaper, and smarter way to raise large amounts of capital. Let’s understand exactly why companies issue shares, with simple examples. 📌 What Does Issuing Shares Mean? When a company issues shares, it is basically selling small pieces of ownership to the public. Each share is like a tiny part of the company. When you buy it, you become a part-owner (called a shareholder). This happens during an IPO (Initial Public Offering) in the primary market. 🎯 Top 5 Reasons Why Companies Issue Shares 1️⃣ To Raise Capital for Growth Companies need money to: Open new branches or factories 🏭 Launch new products 📦 Expand into new countries 🌍 Buy new technology 💻 Raising money from public investors helps them grow without taking loans. ✅ Example: A retail company wants to expand to 100 new cities. It needs ₹1000 crores. Instead of taking loans, it sells shares to the public and raises the amount. 2️⃣ To Pay Off Debts Some companies already have loans or debts. They issue shares to raise money and repay those debts. This reduces their interest burden and improves their financial health. 3️⃣ To Improve Brand Image and Trust When a company is listed on the stock exchange, it becomes more: Popular among people Trusted by investors Visible in the market Issuing shares and getting listed brings credibility and helps in brand-building. 4️⃣ To Get Listed on Stock Exchanges To trade on platforms like NSE or BSE, a company must: Be public Offer shares to the public So, issuing shares is the first step to being listed, after which daily trading begins. 5️⃣ To Reward Early Investors & Founders When a company grows and becomes public, it creates wealth for: Founders Angel investors Employees with ESOPs (stock options) Issuing shares during IPO gives them a chance to sell some shares and earn profits. 🏦 How Is It Different from Taking a Loan? Factor Issuing Shares 🔁 Taking Loan 💳 Money Source Public investors Banks/Finance firms Repayment Not required Required with interest Ownership Shared with investors Remains with company Risk Shared with investors Company bears full risk Cost No interest cost High interest cost 🧠 Real-Life Analogy: Imagine you want to open 5 new shops but don’t have enough money. You have 2 options: Take a loan from a bank — pay EMI every month Ask friends to invest money — in return, give them a share of your profit Most companies choose option 2 — just like issuing shares! 🔁 What Happens After Issuing Shares? The company gets money 💰 You (the investor) get shares 📄 You can sell those shares later in the secondary market If the company performs well, your share value goes up 📈 💬 Final Thought: “Issuing shares is a win-win: The company gets money to grow, and you get a chance to grow your money.”