Why Penny Stock Companies Issue Shares - dummies

Why Penny Stock Companies Issue Shares

By Peter Leeds

The main benefit of issuing shares in penny stocks and being listed on a stock market is that it makes raising money easier. A company may start off with an initial public offering (IPO), which sells a portion or all of the corporation to shareholders in exchange for the money they pay for the shares.

Penny stock companies issue shares more frequently than larger corporations because they are

  • Newer: At the early stages for any company, the funds required need to be generated from investors and supporters. An IPO or subsequent public offering is a common way to accomplish this end.

  • Not making money: After a company is “off the ground,” it is likely to be operating at a loss, at least for the first few years. While the funds to continue aren’t coming from its own revenues, the company often looks to investors to buy into its vision.

  • Launching big plans: Often a penny stock company wants to take some big, aggressive steps. If it wants to buy a factory, acquire another company, or double its sales force, it may need to sell more shares to obtain enough funds.

  • Unable to obtain funding: Small, new companies have a hard time convincing banks to loan them millions of dollars. When taking on loans is too difficult or simply unrealistic, many penny stocks turn to selling shares to generate the funds.

Issuing shares can be a great way for small companies to get up and running. Many of the greatest corporations in America started by issuing shares, and did so again whenever they needed more cash.