How many stocks can a company have on the ASX? How are the value of these stocks determined?

Chris: How many stocks can a company have on the ASX? How are the value of these stocks determined?
Who states that company A is allowed to have x number of stocks, and how is the share price determined?

Answers and Views:

Answer by Tyler W
When a company becomes a corporation or a partnership or limited company or something, it cuts itself into shares and divides those shares among the company’s owners. A corporation is a person under the law. It can make decisions on it’s own, according to the rules established by the shareholders or the shareholder’s representatives (the directors). A corporation can create new shares of itself and sell them to an outside person, if it wants to. Also, any one of the corporation’s existing shareholders can sell his/her shares to any oyhrt person. If it is a closely held corporation, the price is determined by direct negotioation with prospective purchasers. In other words, either the corporation officials negotiate directly, or the shareholder who is selling the shares negotiate directly with the prospective buyers.

If a company wants to sell shares to the public, rather than some specific person or select or limiited group, it can do so by doing what is called floating the shares, or doing a public offerring. When you float shares, you enter into an agreement with an invnestment bank, under which the investment bank usually agrees to sell whatever shares it can at or above a price determined by the corporation, or a set number of shares at the best possible price. Sometimes it contracts with other investment banks to help it sell the shares. In that case, the other invnetment banks usually buy some shares as well. The people buying the shares are called subscribers, or subscribed buyers. They contract ahead of time to buy a certain number of shares at a certain price. The subscribers are usually other investment banks, brokerage houses, mutual funds, pension funds, and other investment companies. If the investment bank cannot find enough subscribers to buy all the shares, it will often try to sell shares in the public offerring to individual investor clients, usually on the basis of the client’s willingness and ability to buy large quantities of shares, The investment bank usually buys a number of shares as well, and often agrees to buy whatever shares cannot be sold to other subscribers at the specified price. The subscribers pay the specified price, but the investment bank usually gets a discount and sometimes a flat fee for it’s services. If there are more than one investment bank involved, the primary invnetment bank usually gets a bigger discount and/or an additional fee, and the other investment banks get a smaller discount. Also, usually the price that the shares are sold for is designed to be intentionally low, relative to the expected trading price of the shares, so that subscribers are compensated for buying such large quantities of shares all at once. Once the public offering or float is completed, the subscribers and the investment banks involved sell the shares to the public, usually through their own brokers, or simply maintain a trading inventory of stock to be sold and buy and sell shares of the stock for their clients (like a used car dealer might do).

Maintaining an inventory of stock is called making a market, or being a dealer. Brokers, on the other hand, buy from dealers or on the exchanges) on the behalf of their clients, who pay them a commission, and pay a price (the bid price) above the price paid buy the broker on the stock exchange, or receive a price (the ask price) below the price paid by the broker, in exchange for having a definite price and a guarantee that they will be able to get the shares or sell the shares they are trying to buy or sell. The difference is called the bid-ask spread. Buying or selling stock this way is called entering a market order, because basically you get the last exchange price plus or minus about half the sperad. Also, sometimes the dealers are also brokers at the same time if so, they simply sell or buy the shares directly.

When brokers or market makers (dealers), want to sell or buy shares to each other, they usually go to an exchange, and buy the shares themselves, or on the beahalf of clients using limit orders. Exchanges are where the share price is continuously being negotiated by floor traders, or determined by computerized auction via limit orders. This price is the price published in the financial media in the paper, on TV, and online. When people enter limit orders with their brokers to buy stock, the broker goes on the exchange to try to buy stock on their behalf, according tho the terms of the limit order.

Assuming there are only four people trading limit orders on a stock an a particular moment; lets say you enter a limit order to buy 100 shares at $ 100 per share or less. Another person enters a limit order to sell 100 shares at $ 101 or more. A third person enters a limit order to buy 100 shares at $ 98 or less, and a fourth person enters a limit order to sell 100 shares at $ 99 or more. The guy who wants to sell at $ 101 or more is not able to sell any shares at that time, and has to wait until