Question

Stocks are shares of ownership in a company. A stock certificate represents stock ownership. It specifies the name of the company, the number of shares owned, and the type of stock it represents. Today, stock is generally held electronically; that is, the owners don't get a paper certificate unless they specifically want to hold the certificates themselves.

Choose whether each characteristic is an advantage or disadvantage of issuing stock, from the standpoint of the issuing company.
1. Dividends
2. Future buy back
3. Net profit after taxes
4. One vote per share
5. Repaid
6. Shareholders

Answer 1

Advantages

• Dividends
• Future buy back
• Repaid

By issuing dividends, a company can present a positive image to the outside world of how they take care of their investors. This will prompt more investors to come onboard.

Being able to buy back the stock is also an advantage because should the company decide that they want to reduce shareholder ownership, they would be able to.

Disadvantages

• Net profit after taxes
• One vote per share
• Shareholders

The net profit after taxes of the company will be reduced because they are being shared as dividends with shareholders. A company would lose more control when shares are issued because the shares will have the right to vote on company affairs.

Laws regarding shareholders will place the company under strain as they try to ensure compliance.