Understanding the Stock Market
When you have a publicly traded corporation, the shares of stock issued by your company are sold on an open stock market. If you are a company that is thinking about taking the next step and becoming a publicly traded corporation, it is important for you to understand the basics of the stock market and how it can affect the value of your company.
How Stocks are Traded
A stock market, like any other market, works on the principles of supply and demand. If the demand for your company's stock is greater than the supply, then the price per share will increase. Conversely, if people are unloading your stock cheaply just to get rid of it, then your company is probably in some trouble.
In a stock market, brokers buy and sell stock based on the orders of their clients. Sometimes a stock's unexpected upturn can make more brokers interested in buying it, artificially driving up the price. The same is true of the opposite; sometimes a rapid sell-off of certain investors can cause a panic in your other investors and you can be left in the lurch.
The Value of Your Company
Because the value of your stock is based on the perceived value of your company, the stock's value is actually somewhat independent from the company's real value. One does not necessarily accurately reflect the other. For example, Enron's stock was doing amazingly well in the late 1990’s despite the fact that the real value of the company was virtually worthless. Conversely, stock in General Electric in 2009 is under-performing while the company itself is quite valuable.
It is important to understand that, while turning your company into a publicly traded corporation can have many benefits in terms of investment capital and international presence, it can also tie your company into the ups and downs of the fickle stock market. It is important to understand both the positives and the negatives before you make the decisions that will determine the fate of your company.
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If you have any questions about your business and what is best for its future, contact Texas Legal Entities today by calling 512-472-2431.
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