Basics

After several years of growth a company decides it wants to expand.  This could mean a new plant, store or buying another company.  In order to do this it needs money (capital).  The company enters into what is called the "primary market", this is where they meet with "investment bankers" who work for firms that specialize in raising capital (money) to help companies grow.  The money might be either public (creating stocks or bonds open to the public) or private (getting individuals or groups to invest for a stake in the company, but the company remains private).  Investment bankers review the company and its needs, and then suggest a course of action.  If they decide the best course of action is to take the company public, they do this through a process called Initial Public Offering (IPO) of stock.  When a person or company purchases stocks (see section on Stock Types Common & Preferred) they are purchasing a partial ownership of the company and have a claim on the corporation’s earnings and assets (such as a plant or office building, and everything in them).