Why do companies issue stock?

• A. To raise capital for business operations and growth
• B. To increase the company's expenses
• C. To reduce their total liabilities
• D. To decrease the number of shareholders

Answer: (A)

Verified step by step guidance

1. Understand the concept of issuing stock: Companies issue stock to raise capital by selling ownership shares to investors. This capital can be used for various purposes, such as funding business operations, expanding the company, or investing in new projects.
2. Analyze the options provided: Evaluate each option to determine which aligns with the primary purpose of issuing stock. For example, raising capital is a direct benefit, while increasing expenses or reducing liabilities are not typically associated with issuing stock.
3. Consider the impact on shareholders: Issuing stock increases the number of shareholders, as new investors purchase shares. This is contrary to the option suggesting a decrease in shareholders.
4. Focus on the correct purpose: The primary reason companies issue stock is to raise capital for business operations and growth. This aligns with the correct answer provided in the problem.
5. Conclude by eliminating incorrect options: Exclude options that do not align with the purpose of issuing stock, such as increasing expenses, reducing liabilities, or decreasing shareholders, and confirm the correct answer.