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I have the following question I cannot seem to find the answer to online:

Publicly traded companies sell stocks to fund the business. So, let's say a firm is listed on a stock exchange with 100 shares, each costing 1 dollar. Has the business now raised 100 dollars? Or will it get the money when the stocks get bought by others?

My main question however is whether or not the company gains or loses money with the fluctuation of the stock's price. I cannot seem to grasp how there can be constant funding if one person buys 15 stocks and another sells 10. Does the company make a profit from the difference between these 2 transactions? My point is that if the $100 is all that the company got by listing on the SE, then it does not seem to be worth it in the long run.

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  • $\begingroup$ Are you thinking of statements from company reports along the lines of "1,000 shares of $1 each"? That price is purely nominal; it has nothing to do with the actual amount raised. $\endgroup$ Sep 13, 2023 at 14:21

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Companies only get money directly from shares they sell to other people. They do not earn money from people trading shares further. When company lists at stock exchange 100 shares and people buy 1 share for 1 dollar then company gets 100 dollars (assuming away any transaction costs for sake of simplicity).

Companies do not gain money from their own stock price fluctuation directly. They could issue new shares when stock price raises or they could borrow against their stocks and borrow more when stock price raises but they do not directly financially benefit from other people trading stocks at higher prices then they bought them.

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An IPO roughly works like this:

  1. Company has 1000 shares held by the current owner of the firm.
  2. The investors sell 100 shares for \$0.94 each to an investment bank for a total of $94.
  3. The investors who sold the 100 shares get the \$94 in cash and the investors that did not sell get nothing (but retain their shares).
  4. Investment bank sells 100 shares for \$100 to interested investors.

OR

  1. Company has 900 shares held by the current owner of the firm.
  2. Company authorizes 100 shares of stock. In the old days, they might print physical certificates and hold these in a vault. They are owned by the company (not the individual investors).
  3. The firm sells 100 shares for \$0.94 each to an investment bank for a total of $94. The firm no longer has 100 shares authorized but not sold. Instead it has 1,000 shares, 100 of which are held by the public. The firm now has \$94 in additional cash.
  4. Investment bank sells 100 shares for \$100 to interested investors.

This is not a profit generating event. This isn't even revenue. But it does changes the composition and size of the assets and liabilities of the firm.

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