Are there a limited amount of stocks sold initially by a company going public?

Question

Is there a limit to what is sold? Can a company at any time decide to not sell any more shares? When stocks are bought are they from the company only? I know people sell shares but are they sold back to the company or to individuals meeting the asking price.

Des this also include penny stocks?

Answer 1

Yes, there are a limited number which is usually established by investment bankers and accountants based on the valuation of the company. A company can stop issueing new stock, but existing stock can always be traded on the open marked. Once sold, the company no longer owns the stock. They use the stock sale to raise money, usually for capital expansion. Companies sometimes decide to buy shares back, in which case they act just like a person or institution buying stock. Stocks are bought and sold on the market at the price which the market and the companies profitability (or prospects) dictate.

Answer 2

The limit on the number of stocks initially sold will depend on the valuation of the company and the marketing strategy devised by its investment bankers. Let's take a simple example. A company is valued to be worth $100 based on its prospective earnings. The investment bankers decide that they want the initial offering price of the shares to be no less than $1.00. In this case, they will sell the company to stockholders by issuing 100 shares at $1.00 each. Had they decided to price the initial shares at 50 cents, they would have issued 200 shares instead.

The initial stock offering represents a commitment. Using the example above, in midstream the company could not decide to stop issuing and selling shares after the first 50. That would be breaking its contracts with the investment bankers who market these shares to the investment community.

After the initial public offering, the company can decide to not issue anymore shares. And, that's fine but unlikely. Growing companies often need additional equity capital to grow their business.

The only time stocks are in essence bought from the company is when the company issues new stocks (either initially or later on). Otherwise, at all other time stocks are actually traded between buyers and sellers who are investors dealing through their brokers. If you buy a share of IBM through Charles Schwab, Schwab sells the stock to you. They in turn bought the stock from someone else, as they as a dealer do not take a position in IBM. And, IBM has a company will not have received a penny on these stock transactions.

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