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Does that just happen with stock options or normal stocks as well? It would seem that if there are 100 shares and I have 1, then it should be worth 1% of the c
by zackmorris 12y ago
Does that just happen with stock options or normal stocks as well? It would seem that if there are 100 shares and I have 1, then it should be worth 1% of the company no matter how successful it becomes. I can understand how options might be subject to tinkering, but if stocks are as well then the whole thing sounds like a racket.
I just mean that the idea of dilution suggests to me that the original company has been dissolved and reconstituted somehow. That sounds like something seriously in need of regulation...
- avn2109 12y ago>> "then the whole thing sounds like a racket." Yup, that's it exactly.
- smeyer 12y agoThis doesn't sound like what happened in the case here, but dilution can happen due to reasonable funding rounds. If you own 1 share out of 100 and then the company decides to go to some investors and raise $10 million, they might give those investors 50 shares, meaning the company now has 150 shares, the new investors own a third of the company, and you own 2/3 of a percent of the company instead of 1 percent. Where this gets messy is if shenanigans are used to dilute particular shareholders (e.g., after some event you now own 0.001% and someone else's portion is unchanged) or other such things. Edit: I should add that even publicly traded companies do this, issuing more shares and diluting current shareholders to raise capital.