Did You Know Why do companies issue shares

Stock exchanges allow companies issue shares to the public in exchange for cash.

The amount of cash each company gets from issuing shares depends upon how many shares they issue and how much each of their shares are worth. Companies will often use the cash to grow with their businesses and may not want to get the cash from a bank in the form of a loan.

If companies are successful at growing their businesses, they can always buy back some or all of their shares. They may also issue more shares in the future when they need more cash.

 

Why would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to "raise money". To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock.

A company can borrow by taking a loan from a bank or by issuing bonds. Both methods come under "debt financing". On the other hand, issuing stock is called “equity financing”. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way.

All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).

It is important that you understand the distinction between a company financing through debt and financing through equity. When you buy a debt investment such as a bond, you are guaranteed the return of your money (the principal) along with promised interest payments.

This isn't the case with an equity investment. By becoming an owner, you assume the risk of the company not being successful - just as a small business owner isn't guaranteed a return, neither is a shareholder. Shareholders earn a lot if a company is successful, but they also stand to lose their entire investment if the company isn't successful.
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@amit1212
So equity has no cost is it?

 

They do not have to pay you back the money you invest, so instead, they offer shares which represent part-ownership interest in that particular company. ... offering shares to public gives Company a brand name and a cheaper source of funding (as compared to Bank Loan etc) as Shares issued to public.

 

It is mainly so that they can minimize risk upto a great extent.
In case of equity shares, the share holder gets a say in the decisions regarding the company and then a joint board of directors decide what to do.
In case of preference shares, the share holder does not get a seat in the table of the board of directors but on the other hand has assured profits coming his/her way.
There are multiple things involved in why a company sells their shares and it is impossible to explain all of it in one sitting.
But the basic idea is so that the finances are distributed and the risk is minimized.