how does a company get stock: complete guide

How a Company Gets Stock

Keyword early use: This article answers the question "how does a company get stock" and then explains the full lifecycle: authorization, private issuance, employee equity, public offerings (IPO and direct listing), SPAC mergers, and market mechanics. Read on to learn the practical steps, governance decisions, regulatory obligations, and common pitfalls companies face when they create, issue, or list corporate shares.

Definitions and basic concepts

Before explaining how does a company get stock, it helps to define core terms that appear throughout this guide.

• Shares / stock: units of corporate ownership that represent a residual claim on a company's assets and earnings.
• Equity: the ownership interest in a company; commonly represented by common stock and, in some cases, preferred stock.
• Authorized shares: the maximum number of shares a company is permitted to issue under its charter.
• Outstanding shares: the number of shares issued and held by investors at a given time.
• Common vs. preferred stock: common stock usually grants voting rights and participation in residual value; preferred stock often has priority for dividends and liquidation and can include conversion or other special rights.
• Market capitalization: share price multiplied by outstanding shares; a broad market measure of company value.
• Primary vs. secondary market: a primary issuance is a sale of newly issued shares by the company; the secondary market is trading among investors after issuance.

Ownership rights vary by share class and jurisdiction, but commonly include voting, dividends (when declared), and residual rights at liquidation. Some preferred stock also includes liquidation preference, dividend priority, or anti‑dilution protections.

Why companies issue stock

Companies issue stock for several practical reasons. Understanding these objectives clarifies choices about structure and timing.

• Raise growth capital: equity provides cash without contractual repayment, useful for scaling operations, product development, or geography expansion.
• Reduce leverage: issuing equity can improve balance sheet ratios and reduce debt service risk.
• Provide liquidity: public issuance or secondary sales let founders and early investors realize some gains.
• Employee compensation: equity incentives (options, RSUs) help attract and retain talent.
• Strategic transactions: stock can be used as consideration for mergers and acquisitions or joint ventures.

Each reason carries trade‑offs. For example, raising equity avoids fixed interest payments but dilutes existing owners and brings regulatory and reporting obligations.

Corporate authorization and internal governance

Corporate charter and authorized shares

A company cannot legally issue unlimited stock. The articles of incorporation or corporate charter specify the number and classes of authorized shares. To issue more shares or create new classes, the company typically must amend its charter, following state corporate law procedures.

Board and shareholder approvals

Issuing stock often requires board approval by resolution. Creating new share classes or increasing authorized shares normally also requires a shareholder vote. These governance steps ensure statutory compliance and provide transparency to existing owners.

Methods a company uses to issue or get stock

Companies have multiple pathways for creating and distributing equity. Below are the common methods and how they function in practice.

Private issuances (venture financings, private placements)

Private companies commonly issue stock to investors such as angels, venture capital firms, or private equity funds. These transactions are negotiated directly and often use preferred stock with protective provisions—liquidation preferences, anti‑dilution clauses, information rights, and board seats.

Private placements are faster and less costly than public offerings, but they typically limit liquidity and involve negotiated investor protections. Dilution occurs when new shares are issued; founders should model cap table changes carefully.

Employee equity and incentive programs

Companies grant equity to employees and contractors through:

• Stock options: the right to buy shares at a fixed strike price after vesting.
• Restricted stock units (RSUs): promises to deliver stock (or cash equivalent) after vesting.
• Restricted stock grants: actual shares issued subject to vesting or repurchase rights.

These programs require formal equity plans approved by the board and often by shareholders. Accounting rules (equity compensation expense) and tax timing (exercise, sale) are important considerations.

Convertible instruments and pre‑IPO securities

Startups often use convertible notes, SAFEs (Simple Agreements for Future Equity), and warrants to delay valuation negotiations until a priced round. These instruments convert into equity at a later financing event or an IPO, usually with a conversion discount or valuation cap to reward early risk.

Understanding conversion mechanics is essential because they affect dilution and future ownership percentages.

Public issuance (Initial Public Offering — IPO)

An IPO is the traditional route for a company to list shares on a public exchange and make them available to public investors. An IPO typically involves:

• SEC registration (Form S‑1 in the U.S.) with detailed disclosures and audited financials.
• Underwriting by investment banks who help price and distribute shares.
• A roadshow to market the offering to institutional investors.

An IPO raises capital from new public investors (primary shares) and can provide liquidity to early owners through secondary sales (if included in the offering). The IPO process transforms a private company into a public reporting company with ongoing disclosure requirements.

Direct listing

A direct listing lets an existing company list shares publicly without issuing new shares to raise capital. In a direct listing, existing shareholders sell shares directly into the market. Advantages include lower dilution and no underwriting fees; disadvantages can be less capital raised and potential volatility in allocation to retail and institutional buyers.

SPAC mergers and alternative routes

Special Purpose Acquisition Companies (SPACs) are publicly listed shell companies that raise capital and then merge with a private company to take it public. A SPAC merger can speed the path to public markets and provide negotiated deal terms. However, SPACs carry special structuring issues and investor protections that warrant careful review.

Secondary offerings and follow‑on issuances

After going public, companies can issue additional shares in follow‑on offerings to raise more capital. Secondary offerings can be dilutive (if new shares are issued) or non‑dilutive (if existing shareholders sell shares). Timing, market conditions, and disclosure all influence the success of follow‑on offerings.

The IPO process — step by step

If a company decides to go public, the IPO process typically follows these stages.

Assessing readiness and objectives

Management and the board evaluate whether public markets fit the company’s strategic goals. Key readiness factors include revenue trajectory, profitability path, governance structure, internal controls, and market conditions. Legal, financial, and operational readiness can take months or years to build.

Assembling the team (underwriters, lawyers, auditors)

Companies engage investment banks to underwrite and market the offering, securities counsel to prepare legal documents, and auditors to audit financial statements. Other advisors include investor relations firms, compensation consultants, and corporate governance specialists.

Preparing financials and disclosures

Public filings require audited financial statements prepared under applicable accounting standards (e.g., U.S. GAAP). Companies must document internal controls and provide forward‑looking risk disclosures. Transparency is central to regulatory compliance and investor trust.

Drafting and filing the registration statement/prospectus

In the U.S., the registration statement (S‑1) contains the prospectus and detailed disclosures about the business, risks, use of proceeds, executive compensation, and financials. The SEC reviews filings and often issues comments that lead to iterative revisions.

Marketing (roadshow) and pricing

Management and underwriters travel to meet investors (roadshow) to explain the company story. Underwriters gather indications of interest and set a price range. Final pricing balances the company’s capital needs and demand from institutional investors.

Listing and the first day of trading

Once priced, shares begin trading on the chosen exchange. Lock‑up agreements typically restrict insiders from selling for a set period (commonly 90–180 days). After listing, the company must comply with ongoing reporting obligations.

Regulatory and listing requirements

SEC registration and disclosure obligations

Public companies in the U.S. must meet ongoing reporting requirements such as annual reports (Form 10‑K), quarterly reports (Form 10‑Q), and material event reports (Form 8‑K). Insiders must file ownership and transaction reports (Forms 3, 4, 5). Anti‑fraud rules and investor protection statutes apply.

Stock exchange listing standards

Exchanges set minimum standards for listing, including minimum market capitalization, share price, number of public holders, and corporate governance practices. Common U.S. exchanges have tiered requirements for initial listing and continuing compliance. Meeting these standards is part of the preparation for going public.

Markets where stock trades

When asking how does a company get stock, it’s useful to know where shares trade: primary and secondary markets.

• Primary market: the company issues new shares directly to investors. Examples include an IPO or a private placement.
• Secondary market: investors trade existing shares on exchanges or OTC markets. Prices here reflect supply, demand, and public information.

Liquidity and price discovery largely occur in the secondary market, which influences how attractive a public listing will be for current owners.

Pricing and valuation considerations

Valuation matters when issuing stock. Approaches include:

• Comparable companies (peers) analysis.
• Discounted cash flow (DCF) models projecting future cash flows.
• Book value or asset‑based valuation for capital‑intensive firms.

Underwriters and investors use these methods and market signals during price discovery in an IPO. For private rounds, valuation is negotiated between the company and investors.

Corporate actions that affect stock

A company’s choices after issuing stock can materially affect holders.

• Stock splits / reverse splits: adjust share counts and per‑share prices without changing overall market capitalization.
• Dividends: distribute cash or stock to shareholders.
• Buybacks: repurchase outstanding shares to reduce float and often raise EPS.
• Issuance‑related dilution: issuing new shares reduces existing ownership percentages.
• Insider sales and secondary offerings: can affect public perception and liquidity.

Understanding the mechanics and signaling effects of these actions is important for management and investors alike.

Accounting and tax implications

When a company issues stock, it records proceeds in shareholders' equity on the balance sheet (common stock, additional paid‑in capital). Equity issuance does not create a liability, but equity compensation generates expense recognition under accounting standards.

Tax consequences depend on jurisdiction and instrument type. For employees, option exercises and RSU vestings can trigger taxable events. Companies must model EPS impacts and disclosure of diluted shares for accurate investor reporting.

Advantages and disadvantages of issuing stock

Advantages:

• No fixed repayment obligation like debt.
• Access to broad capital markets.
• Equity compensation aligns employee incentives with company performance.

Disadvantages:

• Dilution for existing owners.
• Ongoing disclosure and compliance costs.
• Market scrutiny and potential pressure for short‑term performance.

These trade‑offs inform whether a company pursues private funding, debt, or public markets.

Practical checklist for companies considering issuing stock

If you are evaluating how does a company get stock, use this stepwise checklist:

1. Define objective: capital, liquidity, compensation, M&A currency.
2. Assess readiness: financial performance, governance, controls.
3. Assemble advisors: legal, accounting, investment banking, investor relations.
4. Audit and prepare financial statements to public standards.
5. Approve equity plans and shareholder authorizations.
6. Choose issuance method: private round, IPO, direct listing, SPAC, or secondary offering.
7. Prepare regulatory filings and disclosures.
8. Plan investor communications and post‑issuance compliance.

This practical roadmap helps teams allocate time, budget, and governance resources.

International and jurisdictional considerations

Laws and market practices differ across countries. For example, U.S. SEC rules govern U.S. public offerings; EU and UK regulators have analogous regimes. Cross‑listing or dual listing introduces additional compliance layers and reporting obligations in multiple jurisdictions.

As an illustrative regulatory development linked to the broader fintech and crypto ecosystem: as of May 2025, according to the Financial Times, London‑based fintech Revolut pivoted to pursue a de novo U.S. bank charter from the Office of the Comptroller of the Currency (OCC). That decision highlights how regulatory choice—charter vs. acquisition—affects the ability of financial firms to offer integrated services, including crypto features, across states under a federal framework. This example underscores that regulatory pathways and licensing can shape a company’s capital strategy and product rollout in a new market.

Special topics and variants

Restricted shares, preferred classes, dual‑class structures

Companies may adopt share classes to balance control and capital needs. Dual‑class structures can concentrate voting power with founders (super‑voting shares) while offering economic participation to public holders. Preferred stock in private financings routinely includes liquidation priority and conversion features.

Each structure has governance trade‑offs and may influence investor appetite.

Tokenization and crypto analogues (brief)

Blockchain tokenization can produce digital assets that represent economic rights in a company or real‑world asset. These tokenized instruments may resemble shares in economics but are subject to distinct securities and commodities laws. For companies considering tokenization, regulatory clarity and custody, settlement, and investor protections vary by jurisdiction. When discussing how does a company get stock, note that tokens are not automatically equivalent to corporate stock and must be treated carefully under securities laws.

If your organization explores digital issuance, use custodial and settlement services that meet institutional standards. For on‑chain wallets, consider solutions such as Bitget Wallet to hold and interact with digital assets in a compliant manner.

Markets, liquidity and after‑market behavior

Once shares are tradable, market forces determine price and liquidity. Market makers, exchange rules, public disclosures, analyst coverage, and investor demand all influence trading. A successful issuance relies on sustained investor engagement, clear communications, and consistent reporting.

Frequently asked questions (FAQ)

Q: Can a private company issue stock to employees?

A: Yes. Private companies commonly grant options, RSUs, or restricted stock. Equity plans must comply with corporate approvals, securities exemptions, and tax rules.

Q: How long does an IPO take?

A: Timelines vary. Preparation and internal readiness can take 6–24 months. The SEC review and marketing process commonly add several months; the total can range from a few months to over a year depending on complexity.

Q: What is dilution?

A: Dilution occurs when new shares are issued, reducing the ownership percentage of existing shareholders. Instruments that convert to equity (convertibles, options) also cause dilution when exercised.

Q: How can small investors access IPO shares?

A: Retail access depends on allocation decisions by underwriters. Some direct listings and newer platforms provide broader retail access. Small investors can also purchase shares on the secondary market after listing.

Q: How does a company get stock without raising capital?

A: A direct listing enables existing shareholders to sell shares publicly without issuing new shares. Similarly, private secondary transactions let employees and early investors sell shares to accredited buyers without a capital raise for the company.

References and further reading

Sources and resources you can consult for deeper study (no links provided here):

• U.S. Securities and Exchange Commission (SEC) investor guides on IPOs and public company reporting.
• SEC forms and filing instructions (e.g., Form S‑1, 10‑K, 10‑Q, 8‑K, Forms 3/4/5).
• Standard corporate law treatises on articles of incorporation and shareholder approvals.
• Accounting standards for equity and stock‑based compensation (e.g., ASC 718 in the U.S.).
• Specialist guides on SPAC transactions and direct listings.
• Industry explainers on private financings, convertible securities, and valuation methods (e.g., comparable company analysis, DCF).

Note: For jurisdictional details, consult local securities regulators and qualified legal or accounting counsel.

See also

• Initial public offering (IPO)
• Stock exchange listing
• Corporate finance
• Equity compensation
• Securities regulation

Next steps and practical advice

If you are a founder or manager asking "how does a company get stock", start with the internal governance checklist: confirm authorized shares, board and shareholder approvals, and a clear capitalization table. Choose the issuance route that matches your objectives—capital, liquidity or employee incentives. When public markets become a consideration, assemble experienced legal, accounting and banking advisors early.

For organizations exploring digital asset components or custody for tokenized instruments, consider institutional‑grade wallet providers such as Bitget Wallet for custody and transaction management. For trading, custody, or market access post‑listing, Bitget offers trading services and tools tailored to professional and institutional needs.

Further exploration: if you want a downloadable readiness checklist or a stepwise timeline for IPO preparation, reach out to your corporate finance advisor or corporate counsel. Practical planning now reduces delays and costly rework later.

This article explains the legal, financial, and market mechanics behind the question "how does a company get stock". It is educational and not investment advice. Consult qualified professionals for decisions about issuing or investing in stock.