Pros and Cons of Issuing Common Stock

Overview of Common Stock

Common stocks are the ordinary shares issued by corporations, providing an alternative to debt financing and to preferred stock. The initial offering is typically through an initial public offering (IPO), followed by possible secondary offerings to create more shares in the market.

Pros of Issuing Common Stock

• Raises capital for growth, acquisitions, or debt payment without accruing debt.

• No mandatory interest payments, allowing companies to pay dividends at their discretion.

• Potentially attracts more investors and may improve the company’s credit rating.

Cons of Issuing Common Stock

• Dilutes ownership for existing shareholders, reducing their voting influence and stake in decisions.

• In bankruptcy, common stockholders have the least claim on assets, only getting returns if all creditors and preferred shareholders are paid first.