How would a company that wants to go public decide how many shares to put out?
Why do some companies issue 100 million shares while others issue 1 billion shares?
How much percent wise does a company hold in 1 share? Why isn’t there a fixed amount of shares for all companies to issue when going public?
In: Economics
How many shares to make.public is based on what a company wants their stock price to be.
So the two biggest reasons that different companies have different numbers of shares when going public is that 1) not all companies have the same valuation and 2) some companies want different levels of liquidity than others.
Some companies don’t want it to be easy to buy or sell their stock. They want the stock price to remain stable, they don’t want people trading it very often, and sometimes they really don’t want individual investors to have any, as opposed to institutional investors. Also, remember that the corporation is accountable to shareholders, and shareholders get to vote on things, and the company may not want to have to answer to random jackasses who bought stock. So, they make it too expensive for regular trading. BRK.A, Warren Buffett’s firm, costs something like $300,000 *per share*.
So let’s say you think your company is worth $5 billion and you want your stock price to be about $100 per share. You’d issue 50 million shares of stock at $100 a piece. But what if you want your stock to be $500 per share to cut down the trading volatility? Then you’d only issue 10 million shares.
As far as how many to keep, generally the founder is going to keep at least 51% so they can still be in control of the company. Some founders are playing for the long term and are only going public to raise funds for their company. They’ll only release as many shares as it takes to raise the amount of money they think their company needs. Some founders just want to cash in so they’ll release as much as they think the market will buy and take the payout.
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