Skip to ContentGo to accessibility pageKeyboard shortcuts menu
OpenStax Logo

A picture of a large electronic stock exchange board.
Figure 14.1 Stocks. Company stocks are traded daily across the globe. (credit: modification of “E-ticker” by “klip game”/Wikimedia Commons, Public Domain)

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.

Order a print copy

As an Amazon Associate we earn from qualifying purchases.

Citation/Attribution

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 permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a 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 digital format, then you must 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

© Dec 13, 2023 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 are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.