Skip to ContentGo to accessibility page
OpenStax Logo
Principles of Accounting, Volume 1: Financial Accounting

Why It Matters

Principles of Accounting, Volume 1: Financial AccountingWhy It Matters
Figure 14.1 Stocks. Company stocks are traded daily across the globe. (credit: modification of “E-ticker” by “klip game”/Wikimedia Commons, Public Domain)

Chapter Outline

Why It Matters

Chad and Rick have experienced resounding success operating their three Mexican restaurants named La Cantina. They are now ready to expand and open two more restaurants. The partners realize this will require significant funds for leasing locations, purchasing and installing equipment, and setting up operations. They have tentatively decided to form a new corporation for their future restaurant operations. The partners researched some of the characteristics of corporations and have learned that a corporation can sell shares of stock in exchange for funding their operations and buying new equipment. The sale of shares will dilute the partners’ ownership interest in the restaurants but will enable them to finance the expansion without borrowing any money.

Chad and Rick are not ready to go public with the offering of their shares because the three current restaurants are not widely recognized. A public offering of the shares in a corporation is typically done when a company is recognized and investment banks and venture capitalists can create enough interest for a large number of investors. When a corporation is starting up, it shares are typically sold to friends and family, and then to angel investors. Many successful companies, like Amazon and Dell, started this way.

Partners Chad and Rick locate possible investors and then share their restaurant’s financial information and business plan. The investors will not participate in management or work at the restaurants, but they will be stockholders along with Chad and Rick. Stockholders own part of the corporation by holding ownership in shares of the corporation’s stock. The corporate form of business will enable Chad, Rick, and other shareholders to minimize their liability. The most that the investors can lose is the amount they have invested in the corporation. In addition, Chad and Rick will be able to receive a salary from the new corporation because they will manage the operations, and all of the shareholders will be able to share in the corporation’s profits through the receipt of dividends.

PreviousNext
Order a print copy
Citation/Attribution
Reuse and redistribution of this content in digital or print format:
  • This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's prior written permission.
  • This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License, which means that you can reuse and modify the material only for noncommercial purposes, must attribute OpenStax, and must distribute any derivative works under the same license.
  • Any commercial printing of this textbook, including using a local or custom printer, must be approved by OpenStax, and proper citation provided.
  • OpenStax-copyrighted images, activities, assessments, and similar components of this book are subject to the same licensing – CC-BY-NC-SA. They can be used for noncommercial purposes with attribution. Commercial use requires permission.
  • Permission requests: Anyone who intends to incorporate this content (including text, images, and other components) into large language models, use it in AI offerings, use it commercially (including in print), and/or has questions about another use case is welcome to complete our reuse request form.
Attribution information
  • If you are redistributing all or part of this book in a noncommercial print format, then you must include on every physical page the following attribution:

    Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters

  • If you are redistributing all or part of this book in a noncommercial digital format, then for every page that includes OpenStax content, you must license the derivative work under the same CC-BY-NC-SA license as the original, and include on every digital page view the following attribution:

    Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters

Citation information

The information below includes the information needed to generate citations in most major styles (APA, MLA, etc.); you must reformat and organize the information as needed to fit the requirements of the style. Use the information below to generate a citation. We recommend using a citation tool such as this one.

© Apr 23, 2026 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo, and Rice University name, and Rice University logo trademarks, or wordmarks are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.