What is a primary reason a company may choose to issue common stock?

A company may choose to issue common stock primarily to raise capital for expansion or new investments. When a company decides to grow, whether it’s through new projects, research and development, or acquiring new assets, it often requires additional funds. Issuing common stock is one way to generate that needed capital without incurring additional debt, which could strain future cash flows or impact the company’s financial stability.

By offering shares to the public or existing shareholders, the company can obtain money that can be used to finance its growth initiatives. Investors who buy these shares expect potential returns in the form of capital appreciation and dividends. This method is generally perceived as a more flexible way of sourcing funds compared to borrowing, as it avoids the obligation of fixed repayments associated with debt financing.

The other options align with different financial strategies but do not center on the primary motivation behind issuing common stock. For instance, repaying long-term debt pertains to managing existing obligations, while decreasing ownership control would not be a goal of issuing stock, as this action typically dilutes ownership among current shareholders. Lastly, simplifying financial reporting generally isn’t a primary concern addressed by issuing equity; financial reporting complexity can arise from various accounting treatments that aren't directly related to the capital structure employed.