Buying Stocks (Shares) Direct From the Company

Submitted by George Polizogo... on 7 February, 2006 - 20:48

Quite a few people have asked me why the public can't buy stock direct from the issuing company? Why does it have to be done through a stock broker?

Basically companies create stock to raise capital for their business to reinvest into a project or plan. So the shares they create exist in the market for the public to trade - buy and sell. When the company wishes to raise more capital it may decide to issue more shares. So the number of shares on issue are limited in number.

In America, certain companies allow you to buy stock directly thought them via a transfer agent/bank. Companies like GE, IBM, Target, Exxon, Microsoft, etc have such plans. The best way to see if the stock you are interested in offers a direct stock purchase, go to their website and look under the Investors information link. They will tell you if you can and how to buy direct. Mellon Investors manages direct stock purchase for many companies. The Bank of New York manages the stock purchase plan for GE.

Buying direct is not only cheaper but also a nice way to accumulate the stock monthly and reinvest its dividends. For example, Exxon pays for all transactions except when I want to sell, which is $15. Other companies charge as little as $1 or $2 per transaction.