What is the Stock Market/Stock Exchange?

Stock Market

Stock Market or commonly mentioned as Stock Exchange is the market where stocks/shares of listed (Quoted Public Limited Companies) companies are being traded or bought or sold among buyers and sellers. It's as simple as that. But the process is much more complicated than that. 

Let's see how a company enters the Share Market. There are basically two ways, namely;

1) IPO - Initial Public Offering

2) SPO - Secondary Public Offering

IPO

An Initial Public Offering is where a company ENTERS the stock exchange with a share issue to the public. If the share issue is successful (meaning if all shares are bought by the public) it will be considered a valid share issue and the company name will be listed in the stock exchange and allowed to function as a PLC. However if the shares are not fully subscribed (bought) by the public, the IPO will be considered void or a failure and the Stock Exchange will not allow the company to proceed with it's business activities. 

Entering the market with an IPO involves some risk due to the above factor. If the public doesn't feel like the company is a safe and worthwhile investment, they will not buy the shares and the company will be forced to shut down. Why? Because a share issue is the main mode of capital generation for a company and when it comes to an IPO, it is the step which a company tries to generate capital to START a company, so if that fails there's simply no money to start the business. To avoid this companies use a method called "Under Writing". Under Writing means prior to an IPO, the company gets a bank to sign a deal with the company to purchase the shares of a company in the event the public refuses to buy the full amount of shares. This deal offers security for the company as-well-as some assurance for the public that if the bank trusts the company we should not worry too. So Under Writing works in those two ways and help IPOs get successful.

SPO

Secondary Public Offering is where a company ALREADY LISTED in the Stock Exchange issues shares to the public. A company could have many number of SPOs in it's life time. All the share issue except for the first and foremost share issue will be falling under the category of a SPO. SPOs generally do not involve very much risk so Under Writing agreements are not of necessity and even if a SPO fails, it will not threaten the existence of the company. Usually a company goes for a SPO to generate additional capital maybe for expansion activities, new researches and developments and activities like that. So that's about the two main methods a company gets enlisted in the stock exchange.