How Companies Make Investments To Bump Up Money Over The Financial Markets
Companies are always looking to raise money for the various operations that take place and for other reasons such as expanding. Every business stars from a certain point and is always looking for new investments to improve as time goes by according to the goals they have set. Growth needs more capital and more wisdom to invest in profitable ventures only. Good planning enables a business to grow within its capacity without having to borrow and have debts piling. The needs of a company increase as the company grows. The company may need to hire more employees, equipment or buying computer systems. Small business may not be able to raise all the money they need to expand from the business alone so they borrow from banks. Stable firms that are successful already usually raise money by other means apart from borrowing which they only do when they really have to, these are, issuing company shares and issuing of bonds in the financial markets.
Deciding Whether To Issue Stocks Or Bonds
There is a great difference between the two types of securities both to the company issuing them and to the persons investing.
Bonds are loans that the company has to pay back. Many companies opt to sell bonds (IOUs to investors). The companies view this as disadvantageous in comparison with issuing stocks because they will have to pay the loan with an interest. The advantage is that the company does not need to give up ownership of the business when it borrows from the investor. The company also issues bonds if they cannot make a lot of money for their stock when the stock market is depressed.
Stocks are shares of property in any company It is one way that a company can decide to use to raise money. It is not a loan like a bond is so the company does not pay it back. Companies prefer issuing stocks because it helps avoid bonds and the spending they that comes with paying the loans.
Types Of Securities In Buying Stock
The two types of securities in buying stock are common stock and preferred stock.
– Common Stock
Common stock has certain advantages for example allowing voting, liquidation rights and distribution rights, which are given per share. If you purchase one share as a common stock holder, you will be able to vote once. If the company is successful, the common stock holder enjoys big profits through earning capital benefits and a number of dividends. If the company goes bankrupt however, the common stakeholder are not given priority.
– Preferred Stock
Preferred stock holders tend not to benefit from voting rights but they are safe stockholders since they are sure of getting dividends. They are preferred stock holders because they receive preference during distribution of dividends and assets of the company if it goes bankrupt or during mergers, acquisition or liquidation.
A Right Of First Refusal Agreement
The investors sign a right of first refusal agreement and it requires the investors interested in selling shares to give priority to the organization, which they have bought, in the occasion that they want to buy the shares from the investor. The agreement is important because it ensures that the share of the corporation get into the right hands.
As the owner of a company, it is important that you learn and understand the various benefits you get when issuing company shares. The owner should be aware of underlying consequences when providing the company for public issue. It all begins with understanding what implication a decision made has on the company. Have in mind that a preferred shareholder has no voting rights but since they are the preference shareholders, they enjoy a fixed percentage on dividends. It all goes down to the basics before you make big decisions. Understand the position of each shareholder and the impacts they have on your company. Equity shareholders have voting privileges and are portion of the decision makers in the company but they are not given a fixed percentage on dividends. They only get dividends after the preference shareholders receive their dividends.
The shareholders that have ownership of the company hold their shares with high regard. They are careful and aware of how the decisions they make may affect the company and their shares so they make critical judgments before making the finally decisions. A company will continue existing whether the owner, the person who started it is dead or alive because of the many different people who become vested in it after sometime. These people see to it that the image of the company is protected because it represents them as much as they represent the company. They understand that for the company to prosper, they need to conduct themselves with utmost diligence and the company will in turn flourish. A company with a good public image will always attract new investors, new customers, easy funding and upward growth as time goes by.