Final answer:
The purpose of selling common stock is to generate inflow of cash from financing activities, which a company uses to expand and grow. It involves raising capital from the public without a promise of a fixed rate of return, and decision-making is conducted by a board of directors elected by the shareholders.
Step-by-step explanation:
The purpose of selling common stock to a new stockholder is to generate inflow of cash from financing activities. When a company sells its own stock, generally through an initial public offering (IPO) or subsequent stock offerings, it does so to raise capital from the public, which includes individuals, mutual funds, and other institutional investors. The funds raised can be used to repay early investors such as venture capital firms or utilized for expansions and other business operations. Unlike debt financing, issuing stock does not require the company to repay the funds or promise a fixed rate of return. Instead, shareholders have the potential to earn returns based on the performance of the company through dividends and appreciation in stock value. The decisions in a company with a large number of shareholders are typically made by the board of directors, which the shareholders elect.