Economy / Stock Market / Stock Exchange
Stock Exchange
Introduction
- Capital Sourcing:
- Companies require finance for investment and operations, which can be obtained from reserves, borrowings, or by raising share capital. Share capital is generated through the issuance of shares.
- Composition of Company Worth:
- The total value of a company is determined by the combined value of all its shares. The promoter, who initiates the company, typically retains the majority of shares and sells the remaining shares to the public, including individuals and institutions.
- Private Limited vs. Public Limited Companies:
- Private Limited Company: Limited to a maximum of two hundred shareholders (Indian Companies Act 2013), with a minimum of 2 persons.
- Public Limited Company: Issues shares to the public through an Initial Public Offering (IPO). The term 'limited' signifies that the company's liability in case of winding up is confined to its assets, not extending to other companies in the group or the personal wealth of promoters and shareholders.
- Liability and Winding Up:
- The term 'limited' signifies that the company's liability in case of winding up is confined to its assets, not extending to other companies in the group or the personal wealth of promoters and shareholders.
- Listing on Stock Exchange:
- Public limited companies are listed on stock exchanges where their shares are traded. The process involves an Initial Public Offering (IPO), where shares are made available to the public.
- Promoter's Role:
- The promoter, often the company founder, initiates the company and generally retains a majority of shares. The remaining shares are sold to the public, both individuals and institutions.
- Liability Limitation:
- The 'limited' status indicates that the company's liability, in case of winding up, is restricted to its assets, safeguarding the personal wealth of promoters and shareholders.
- Stock Exchange Trading:
- Once listed, a public limited company's shares are traded on stock exchanges, providing liquidity to investors. This allows investors to buy and sell shares based on market conditions.
In summary, the stock market serves as a platform for companies to raise capital by issuing shares to the public, enabling investors to buy and sell these shares on stock exchanges.
