People understand that owning stock can earn them money. It makes them partial owners in something bigger than they could possibly buy on their own. For the stock buyer there are obvious advantages, but what about the company that issues the stock? What advantage does this give them? Why would the owners of such a huge money-making organization wish to share its profits with hundreds of other people instead of keeping them for themselves?
To understand why this is done, you must realize that all companies will at one time or another needs to raise capital. This can be done by borrowing or it can be done by selling value in the company itself. This is referred to as issuing stock. They could of course borrow money from a bank or issuing bonds, both methods legitimate means of debt financing. When they issue stock instead they refer to this money raising method as equity financing. The advantage to the company is very real in that by using this method to raise capital they avoid having to repay a loan or make interest payments. To them they are giving nothing more away to stock holders than the hope that their investment will someday be worth more that they put into them. But in the mean time they receive huge amounts of capital to run their company and not debt to repay.
When a company decides to sell stock, the first sale of these shares in the company is called the “Initial Public Offering” or IPO.
This distinction between the company using debt financing versus equity financing is significant. With the purchase of a debt investment, a bond if you will, you are guaranteed to receive the principal you invested back as well as interest payments on this amount. Equity financing is different in that as an owner, you the investor assume the risk that the company could fail, though you are banking on them being successful and making a profit on the money you invested.