1.10Why do companies sell their shares to the public?
1What is it?
Companies sell shares to the public (called going public or listing) mainly to raise money for growth, and to let early owners and investors cash out part of their holding.
2Why does it exist?
Reasons include:
- Money for growth without loans.
- Repay debt and reduce interest costs.
- Exit for early investors like founders and venture capital funds.
- Brand and trust: listed companies must publish results, which builds credibility.
- Currency for deals: listed shares can be used to buy other companies or reward employees (ESOPs).
3Real-life example
A family restaurant becomes popular and wants 20 more branches. Instead of borrowing ₹10 crore, it invites thousands of people to each own a small part.
4Stock market example
Companies like Zomato (now Eternal), Nykaa and LIC listed in recent years through IPOs. After listing, their shares trade daily on NSE and BSE.
5Risks
- Listed companies must follow strict SEBI rules and disclose a lot of information.
- The share price is public, so bad news gets punished quickly.
6Quick revision
- Companies list to raise money or give early investors an exit.
- Listing brings transparency and rules.
- After an IPO, shares trade in the secondary market.
7Knowledge check
Q1. Give two reasons a company goes public.Show answer
To raise money for growth, repay debt, give early investors an exit, build trust, or use shares for deals and ESOPs.
Q2. Who regulates listed companies in India?Show answer
SEBI (Securities and Exchange Board of India).
Q3. What happens to an IPO company’s shares after listing?Show answer
They trade on NSE/BSE between investors.
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