What is a common stock & how does it work?

Issuing additional shares into the financial markets dilutes the holdings of existing shareholders and reduces their ownership in the corporation. Common stocks are ordinary shares that companies issue as an alternative to selling debt or issuing a different class of shares known as preferred stock.

Why should a company issue common stock?

Thus, if a company currently has a high debt load, it can issue common stock and use the proceeds to pay down its debt. By doing so, the company reduces its fixed costs (since interest expense has been reduced or eliminated), which makes it easier to earn a profit at lower sales levels. Advantage 2. Enhanced Liquidity

Should a public company issue common stock?

Common Stock Issuances by Public Companies For publicly held companies, the following additional benefits associated with issuing common stock also apply: A public company can issue common stock to the shareholders of acquisition targets, which they can then sell for cash.