Capital Stock
Candlefocus EditorWith the issuance of capital stock, the issuing company not only gains capital, but also opens itself to a world of potential investors, new shareholders, and customers. However, while companies that issue public shares have the ability to raise large amounts of money (which can lead to even greater profits in the future) they also relinquish an element of control and dilute the value of the existing shares.
Companies that issue capital stock calculate the issuance price in a way that helps them optimize the offers and benefits they gain from investors. Capital stock can also be issued with various restrictions, depending on the desired outcome. For example, the issuing company can issue shares that do not have owner voting rights, which protects against unwanted influence or control by outside parties.
Generally speaking, there are two types of capital stock: common stock and preferred stock. Common stock typically gives the owner voting rights in the company, such as the ability to vote in directors and approve major company decisions. Preferred stock usually does not carry voting rights and is usually accompanied by hefty dividends.
It is important for companies to set the value of their capital stock appropriately. This can help ensure that investors won’t feel as if they’re selling their shares at a loss and it allows the company to have better control over their share prices. Companies also sometimes issue "bonus shares" in addition to their authorized capital stock to increase the value of existing shares.
In conclusion, the issuance of capital stock is a commonly used tool by companies to raise money and finance operations, but it should not be taken lightly. Companies must be mindful of the possible drawbacks and make sure that they set the value of their stock appropriately. These measures can help companies raise the capital they need while still protecting their current shareholders.