Noob question about Stock Market and Shares.

Hi, I know that there is a Primary and Secondary Market, when people buy shares on Primary Market, they invest their money into the company by buying their shares. This is where it gets confusing for me, on Secondary Market(Stock Market) when someone sells a stock, that money goes to the seller and is not invested in the company, right?. So wont the company eventually run out of capital if they dont keep pumping out fresh stocks on Primary Market at face value?

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  1. Companies are constantly issuing debt (bonds) rather than issue more stocks to raise capital. Big companies usually do have a relatively big cash reserves left after attaining profitability, but they still often issue more bonds.

  2. Think about it this way, the company issues a piece of paper to an investor in the primary market. This paper (a share) represents ownership in the company.

    Basically companies provide ownership to investors in exchange for capital in primary markets.

    The secondary market enables investors to trade those shares to other investors.

    From the company’s perspective, however, the number of shares outstanding doesn’t change following a secondary transaction.

    Yes, the share price (the going price for the company’s shares on the secondary market) may change following a secondary transaction, but this does not impact the company’s cash at all.

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