When a large number of shareholders own a company, there are three questions to ask:

1. How and when does the company obtain money from its sale of stock?

2. What rate of return does the company promise to pay when it sells stock?

3. Who makes decisions in a company owned by a large number of shareholders?

First, a firm receives money from the stock sale only when the company sells its own stock to the public (the

public includes individuals, mutual funds, insurance companies, and pension funds). We call a firm’s first

stock sale to the public an initial public offering (IPO). The IPO is important for two reasons. For one, the IPO,

and any stock issued thereafter, such as stock held as treasury stock (shares that a company keeps in their own

treasury) or new stock issued later as a secondary offering, provides the funds to repay the early-stage

investors, like the angel investors and the venture capital firms. A venture capital firm may have a 40%
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