The Stock Market (cont.)

RRHH Digital So why would a company sell shares in itself?

Well, usually companies are formed by families, groups of friends or even individuals. They start off small but with success they growquickly. Take, for example, a car mechanic who opens his own small garage specializing in fitting tires. Luckily he gets a contract with alocal large company to replace their car fleet’s tires and the garage grows. The big orders keep coming in and the company keepsgrowing. Now the small garage has had to get new massive business premises. His business model is so successful that he opens a newlarge garage in a neighboring city, this is also successful.

Now he has a choice: he can either continue to grow slowly, one garage at atime or he can raise capital and open many new garages around the country at the same time. If he chooses the first option then he canstay as the sole owner of his business. If he chooses the second option then the best way to raise the necessary capital is to “float” hisbusiness on the stock exchange. If he does then his company will be added to the list of company names in that particular stock marketand become a “listed company”. Before doing this the company must decide whether the benefits outweigh the negatives. The benefits area higher profile for the company and access to capital. The negatives are increased scrutiny from shareholders, journalists and financialinstitutions, so the company must ask itself if management is ready for such a step. There will have to be more openness andaccountability from everyone involved at the company. The business plan and strategy will be tested by potential investors. Becoming apublicly listed company is not an easy decision to take.

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