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> The whole idea of a company is that if I have $100 to invest, I can either lend it to someone else and get interest, or I can build something and get a profit
by liftbigweights 8y ago
> The whole idea of a company is that if I have $100 to invest, I can either lend it to someone else and get interest, or I can build something and get a profit for my effort.
No. The idea of the company is to pay out the $100 to shareholders. You take on debt if that makes more financial sense to the shareholders.
A prime example is AAPL and their dividends. They could repatriate $1 billion from overseas accounts and pay 10% ( or $100 on taxes ) and then pay $900 million in dividends to the shareholders. Or they could keep their $1 billion overseas, borrow $1 billion at 1% interest rate and pay $1 billion to shareholders.
Debt makes sense for corporations because you are able to shift profits to the shareholders and risk/liabilities to the company. Ultimately, that's why companies exist. To shield shareholders from liability and to serve as a vehicle to transfer profits/wealth to the shareholders.