Granthara01.02.03Why buying a share sends the company nothing0%

01.02.03 · Why buying a share sends the company nothing

You paid ₹5,000 for ten shares of Bharat Foods. It is natural to feel you have put ₹5,000 into the company. You have not put a rupee into it.

Your money never reached them

The company was paid once, in 2019. You were not there.

Part 01 · Where Shares Are Born and Where They Trade
  1. 01.02.01 IPO, FPO, private placement and QIP
  2. 01.02.02 Fresh issue vs offer for sale in an IPO
  3. 01.02.03 Why buying a share sends the company nothing
  4. 01.02.04 Listing, delisting and suspension
  5. 01.02.05 How to read an IPO prospectus
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Follow the ₹5,000

Your money went to whoever sold you those ten shares — another investor, somewhere, who decided they would rather hold cash. The exchange matched you. The shares moved to your , the money moved to theirs.

Demat accountThe electronic account that holds your shares. No paper certificates.

Bharat Foods was not a party to that trade. It was not asked, it was not paid, and its accounts did not change by one rupee.

See it

Two lanes, one company

The top lane happened once, in 2019. The bottom lane has happened every trading day since.

The company appears in both lanes, but it is only holding out a hand in one of them.

After the issue, the share market is a market in second-hand shares.

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Then why does the company care about the price?

Because the price is the terms on which it can raise money next. A company trading at ₹500 that needs ₹50 crore issues one lakh shares. At ₹250 it must issue two lakh — the same money, twice the dilution.

The price also sets what employee shares are worth, what an acquirer would have to pay, and what lenders think of the collateral. None of that is cash arriving. All of it is consequence.

₹0received by Bharat Foods from every trade in its shares since 2019
So is buying shares pointless for the company?

No — the secondary market is what makes the primary market possible. Nobody would fund a business at issue if they could never sell. Your willingness to buy today is what allowed someone to invest in 2019.

Try it

You buy ₹1 crore of a company's shares on the exchange. What does the company receive?

That daily market only exists because the shares are admitted to it. Admission can be granted, paused, or taken away.

Before you read this, which was true?

Remember

The company was paid once, at issue. Every trade since is between investors, and the business receives nothing from any of them.

Everything this chapter has told you, in order

  1. 01.02.01New shares are created in the primary market and paid for in ownership. Everything you do on the exchange screen happens somewhere else entirely.
  2. 01.02.02A fresh issue funds the business and dilutes you. An offer for sale funds the seller and dilutes nobody. The headline size hides which is which.
  3. 01.02.03The company was paid once, at issue. Every trade since is between investors, and the business receives nothing from any of them.
Next
01.02.04 — Listing, delisting and suspension

Shares trade because an exchange allows them to. That permission is not permanent.