5 ms·

I thought stocks represented ownership of a company. If a company has 100 stocks and I own 50, I own 50% of the company. If the company issues 100 more, shouldn

I thought stocks represented ownership of a company. If a company has 100 stocks and I own 50, I own 50% of the company. If the company issues 100 more, shouldn't 50% go to me, since a share represents a part of the company ownership and I own a known percentage of the company? How is it legal to say "you bought 50% of this, but now I've arbitrary decided that I own 99% of it because I gave myself more percent"

rcxdude 3y ago
It generally requires a shareholder vote to do this, so this is mostly a concern for someone who owns a minority stake in the company. And then it depends on the rules that are actually set up for the company as to what is and isn't allowed with issuing new shares. So it's very much a "read the fine print" situation.
batmansmk 3y ago
You can bring in investors, go in retirement, sell your company. So ownership of a company can change. One way of doing that is to sell shares, another way is to give new ones to the newcomers. I don’t know this precise story with Silver Lake, but emitting new shares and diluting past investors to inject cash into the company is sometimes the only solution to bring cash on the account.
LtdJorge 3y ago
You can always create more stocks, but that delays the value of each, so investors might not like that.
- prerok 3y ago
  delays -> devalues, dilutes?
davedx 3y ago
Nothing on paper says "You own 50% of the company". The company starts up, it has 100 shares, you get 50. If you calculate it, you own 50%. Later on the company needs to raise cash, so it issues another 100 shares. Company now has a ton of cash in the bank. Total shares outstanding is 200. Now you own 25%.
- hyperhopper 3y ago
  Then whats the point of buying a stock if it doesn't even entitle you to ownership of a company?
  - abofh 3y ago
    It does entitle you to ownership, you as an investor in the company presumably approved the issuance of new shares on the belief that the additional capital would make your investment worth more in the future.
  - folli 3y ago
    There's for example non-voting stock where you only participate in a potential exit or dividends.
  - filleokus 3y ago
    Depending on the company bylaws you typically need at least a simple majority of the votes / stocks to issue new stocks. The company can also have a rule that says that existing share owners must have the right to purchase before everyone else, to "defend" their stake. In general companies typically raise money because they think the cash infusion will benefit the existing shareholders in the long run, either by not going into ≈bankruptcy or having the cash to do investments / move into new markets etc.
  - rwmj 3y ago
    At least in theory the extra cash raised by selling the new stock makes the company more valuable, so your shares remain worth the same before and after. Actual practice is a lot more nuanced - the company might not be able to sell the new stock at a high enough price, or they might spend the new money immediately on hookers'n'blow^W^W^W unsound investments.
    - PawgerZ 3y ago
      what does ^W^W^W mean
smugma 3y ago
Conversely companies can buy back shares so each share is a larger percentage of the company. Apple has been doing this aggressively for the past 10+ years.

rcxdude 3y ago

It generally requires a shareholder vote to do this, so this is mostly a concern for someone who owns a minority stake in the company. And then it depends on the rules that are actually set up for the company as to what is and isn't allowed with issuing new shares. So it's very much a "read the fine print" situation.

batmansmk 3y ago

You can bring in investors, go in retirement, sell your company. So ownership of a company can change. One way of doing that is to sell shares, another way is to give new ones to the newcomers. I don’t know this precise story with Silver Lake, but emitting new shares and diluting past investors to inject cash into the company is sometimes the only solution to bring cash on the account.

LtdJorge 3y ago

You can always create more stocks, but that delays the value of each, so investors might not like that.

prerok 3y ago
delays -> devalues, dilutes?

davedx 3y ago

Nothing on paper says "You own 50% of the company". The company starts up, it has 100 shares, you get 50. If you calculate it, you own 50%. Later on the company needs to raise cash, so it issues another 100 shares. Company now has a ton of cash in the bank. Total shares outstanding is 200. Now you own 25%.

hyperhopper 3y ago
Then whats the point of buying a stock if it doesn't even entitle you to ownership of a company?
- abofh 3y ago
  It does entitle you to ownership, you as an investor in the company presumably approved the issuance of new shares on the belief that the additional capital would make your investment worth more in the future.
- folli 3y ago
  There's for example non-voting stock where you only participate in a potential exit or dividends.
- filleokus 3y ago
  Depending on the company bylaws you typically need at least a simple majority of the votes / stocks to issue new stocks. The company can also have a rule that says that existing share owners must have the right to purchase before everyone else, to "defend" their stake. In general companies typically raise money because they think the cash infusion will benefit the existing shareholders in the long run, either by not going into ≈bankruptcy or having the cash to do investments / move into new markets etc.
- rwmj 3y ago
  At least in theory the extra cash raised by selling the new stock makes the company more valuable, so your shares remain worth the same before and after. Actual practice is a lot more nuanced - the company might not be able to sell the new stock at a high enough price, or they might spend the new money immediately on hookers'n'blow^W^W^W unsound investments.
  - PawgerZ 3y ago
    what does ^W^W^W mean

smugma 3y ago

Conversely companies can buy back shares so each share is a larger percentage of the company. Apple has been doing this aggressively for the past 10+ years.