query: Is a public company allowed to issue new shares below market price without consulting shareholders?

positive: Shares are partial ownership of the company. A company can issue (not create) more of the shares it owns at any time, to anyone, at any price -- subject to antitrust and similar regulations. If they wanted to, for example, flat-out give 10% of their retained interest to charity, they could do so. It shouldn't substantially affect the stock's trading for others unless there's a completely irrational demand for shares.

negative: "In an IPO (initial public offering) or APO (additional public offering) situation, a small group of stakeholders (as few as one) basically decide to offer an additional number of ""shares"" of equity in the company. Usually, these ""shares"" are all equal; if you own one share you own a percentage of the company equal to that of anyone else who owns one share. The sum total of all shares, theoretically, equals the entire value of the company, and so with N shares in existence, one share is equivalent to 1/Nth the company, and entitles you to 1/Nth of the profits of the company, and more importantly to some, gives you a vote in company matters which carries a weight of 1/Nth of the entire shareholder body. Now, not all of these shares are public. Most companies have the majority (51%+) of shares owned by a small number of ""controlling interests"". These entities, usually founding owners or their families, may be prohibited by agreement from selling their shares on the open market (other controlling interests have right of first refusal). For ""private"" companies, ALL the shares are divided this way. For ""public"" companies, the remainder is available on the open market, and those shares can be bought and sold without involvement by the company. Buyers can't buy more shares than are available on the entire market. Now, when a company wants to make more money, a high share price at the time of the issue is always good, for two reasons. First, the company only makes money on the initial sale of a share of stock; once it's in a third party's hands, any profit from further sale of the stock goes to the seller, not the company. So, it does little good to the company for its share price to soar a month after its issue; the company's already made its money from selling the stock. If the company knew that its shares would be in higher demand in a month, it should have waited, because it could have raised the same amount of money by selling fewer shares. Second, the price of a stock is based on its demand in the market, and a key component of that is scarcity; the fewer shares of a company that are available, the more they'll cost. When a company issues more stock, there's more shares available, so people can get all they want and the demand drops, taking the share price with it. When there's more shares, each share (being a smaller percentage of the company) earns less in dividends as well, which figures into several key metrics for determining whether to buy or sell stock, like earnings per share and price/earnings ratio. Now, you also asked about ""dilution"". That's pretty straightforward. By adding more shares of stock to the overall pool, you increase that denominator; each share becomes a smaller percentage of the company. The ""privately-held"" stocks are reduced in the same way. The problem with simply adding stocks to the open market, getting their initial purchase price, is that a larger overall percentage of the company is now on the open market, meaning the ""controlling interests"" have less control of their company. If at any time the majority of shares are not owned by the controlling interests, then even if they all agree to vote a certain way (for instance, whether or not to merge assets with another company) another entity could buy all the public shares (or convince all existing public shareholders of their point of view) and overrule them. There are various ways to avoid this. The most common is to issue multiple types of stock. Typically, ""common"" stock carries equal voting rights and equal shares of profits. ""Preferred stock"" typically trades a higher share of earnings for no voting rights. A company may therefore keep all the ""common"" stock in private hands and offer only preferred stock on the market. There are other ways to ""class"" stocks, most of which have a similar tradeoff between earnings percentage and voting percentage (typically by balancing these two you normalize the price of stocks; if one stock had better dividends and more voting weight than another, the other stock would be near-worthless), but companies may create and issue ""superstock"" to controlling interests to guarantee both profits and control. You'll never see a ""superstock"" on the open market; where they exist, they are very closely held. But, if a company issues ""superstock"", the market will see that and the price of their publicly-available ""common stock"" will depreciate sharply. Another common way to increase market cap without diluting shares is simply to create more shares than you issue publicly; the remainder goes to the current controlling interests. When Facebook solicited outside investment (before it went public), that's basically what happened; the original founders were issued additional shares to maintain controlling interests (though not as significant), balancing the issue of new shares to the investors. The ""ideal"" form of this is a ""stock split""; the company simply multiplies the number of shares it has outstanding by X, and issues X-1 additional shares to each current holder of one share. This effectively divides the price of one share by X, lowering the barrier to purchase a share and thus hopefully driving up demand for the shares overall by making it easier for the average Joe Investor to get their foot in the door. However, issuing shares to controlling interests increases the total number of shares available, decreasing the market value of public shares that much more and reducing the amount of money the company can make from the stock offering."

negative: "As a TL;DR version of JAGAnalyst's excellent answer: the buying company doesn't need every last share; all they need is to get 51% of the voting bloc to agree to the merger, and to vote that way at a shareholder meeting. Or, if they can get a supermajority (90% in the US), they don't even need a vote. Usually, a buying company's first option is a ""friendly merger""; they approach the board of directors (or the direct owners of a private company) and make a ""tender offer"" to buy the company by purchasing their controlling interest. The board, if they find the offer attractive enough, will agree, and usually their support (or the outright sale of shares) will get the company the 51% they need. Failing the first option, the buying company's next strategy is to make the same tender offer on the open market. This must be a public declaration and there must be time for the market to absorb the news before the company can begin purchasing shares on the open market. The goal is to acquire 51% of the total shares in existence. Not 51% of market cap; that's the number (or value) of shares offered for public trading. You could buy 100% of Facebook's market cap and not be anywhere close to a majority holding (Zuckerberg himself owns 51% of the company, and other VCs still have closely-held shares not available for public trading). That means that a company that doesn't have 51% of its shares on the open market is pretty much un-buyable without getting at least some of those private shareholders to cash out. But, that's actually pretty rare; some of your larger multinationals may have as little as 10% of their equity in the hands of the upper management who would be trying to resist such a takeover. At this point, the company being bought is probably treating this as a ""hostile takeover"". They have options, such as: However, for companies that are at risk of a takeover, unless management still controls enough of the company that an overruling public stockholder decision would have to be unanimous, the shareholder voting body will often reject efforts to activate these measures, because the takeover is often viewed as a good thing for them; if the company's vulnerable, that's usually because it has under-performing profits (or losses), which depresses its stock prices, and the buying company will typically make a tender offer well above the current stock value. Should the buying company succeed in approving the merger, any ""holdouts"" who did not want the merger to occur and did not sell their stock are ""squeezed out""; their shares are forcibly purchased at the tender price, or exchanged for equivalent stock in the buying company (nobody deals in paper certificates anymore, and as of the dissolution of the purchased company's AOI such certs would be worthless), and they either move forward as shareholders in the new company or take their cash and go home."

negative: "I finally found it! Johnson Controls International PLC FORM 8-K/A (Amended Current report filing) Filed 10/03/16 for the Period Ending 09/02/16 from http://investors.johnsoncontrols.com/financial-information/johnson-sec-filings, says on page II-6: (my emphasis for the relevant paragraph) On September 2, 2016, Johnson Controls and Tyco completed their   combination pursuant to the Agreement and Plan of Merger (the “Merger   Agreement”), dated as of January 24, 2016, as amended by Amendment No.   1, dated as of July 1, 2016, by and among Johnson Controls, Tyco and   certain other parties named therein, including Jagara Merger Sub LLC, an   indirect wholly owned subsidiary of Tyco (“Merger Sub”).   Pursuant to the terms of the Merger Agreement, on September 2, 2016,   Merger Sub merged with and into Johnson Controls with Johnson Controls   being the surviving corporation in the merger and a wholly owned,   indirect subsidiary of Tyco (the “merger”).   Following the merger, Tyco changed its name to “Johnson Controls   International plc.”  Immediately prior to the merger and in connection   therewith, Tyco shareholders received 0.955 ordinary shares of Tyco   (which shares are now referred to as “combined company ordinary shares”)   for each Tyco ordinary share they held by virtue of a 0.955-for-one   share consolidation. In the merger, each outstanding share of common   stock, par value $1.00 per share, of Johnson Controls (“Johnson Controls   common stock”) (other than shares held by Johnson Controls, Tyco and   certain of their subsidiaries) was converted into the right to receive   either the cash consideration or the share consideration (each as   described below), at the election of the holder, subject to proration   procedures described in the Merger Agreement and applicable withholding   taxes.   The election to receive the cash consideration was undersubscribed. As a   result, holders of shares of Johnson Controls common stock that elected   to receive the share consideration and holders of shares of Johnson   Controls common stock that made no election (or failed to properly make   an election) became entitled to receive, for each such share of Johnson   Controls common stock, $5.7293 in cash, without interest, and 0.8357   combined company ordinary shares, subject to applicable withholding   taxes.   Holders of shares of Johnson Controls common stock that elected to   receive the cash consideration became entitled to receive, for each such   share of Johnson Controls common stock, $34.88 in cash, without   interest, subject to applicable withholding taxes.   In the merger, Johnson Controls shareholders received, in the aggregate,   approximately $3.864 billion in cash. Immediately after the closing of,   and giving effect to, the merger, former Johnson Controls shareholders   owned approximately 56% of the issued and outstanding combined company   ordinary shares and former Tyco stockholders owned approximately 44% of   the issued and outstanding combined company ordinary shares. This answers what actually happened in the transaction; as far as my cost basis in the new JCI, it's a little more obscure; on page II-7 it says: For pro forma purposes, the valuation of consideration transferred is   based on, amongst other things, the adjusted share price of Johnson   Controls on September 2, 2016 of $47.67 per share and on page II-8: Johnson Controls adjusted share price as of September 2, 2016 (2): $47.67 (2) Amount equals Johnson Control closing share price and market   capitalization at September 2, 2016 ($45.45 and $29,012 million,   respectively) adjusted for the Tyco $3,864 million cash contribution   used to purchase 110.8 million shares of Johnson Controls stock for   $34.88 per share. and both agree with the information posted at http://www.secinfo.com/dpdtb.w6n.2n.htm#1stPage (R66 Merger Transaction Fair Value of Consideration Transferred (Details)) which I can't seem to find on an ""official"" website but it purports to post from the SEC EDGAR database.    So for each share of JCI, it had a fair value of $47.67 prior to the acquisition, and transformed into $5.7293 in cash, plus 0.8357 of ""new"" JCI shares with a basis of $47.67 - $5.7293 = $41.9407. Stated in terms of ""new"" JCI shares, this is $50.1863 (=$41.9407/0.8357) per ""new"" JCI share. (I'm not really 100% sure of this calculation though.)  I also found JCI's Form 8937 which states Fair market value generally is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the facts. U.S. federal income tax law does not specifically prescribe how former JCI shareholders should determine the fair market value of the Tyco ordinary shares received in the merger.  One possible method of determining the fair market value of one Tyco ordinary share is to use the average of the high and low trading prices on the date of the merger, which was $45.69. Other methods for determining the fair market value of Tyco ordinary shares are possible. Former JCI shareholders are not bound by the approach described above and may, in consultation with their tax advisors, use another approach.   as well as similar text on the IRS website: One possible method of determining the fair market value of one Tyco ordinary share is to use the average of the high and low trading prices on the date of the merger, which was $45.69. Using this figure, former JCI shareholders that elected to receive shares in the merger would receive cash and Tyco ordinary shares worth approximately $43.91 per share of JCI common stock exchanged in the merger (assuming no cash received in lieu of fractional shares)."

negative: Full disclosure: I’m an intern for EquityZen, so I’m familiar with this space but can speak with the most accuracy about EquityZen. Observations about other players in the space are my own. The employee liquidity landscape is evolving. EquityZen and Equidate help shareholders (employees, ex-employees, etc.) in private companies get liquidity for shares they already own. ESOFund and 137 Ventures help with option financing, and provide loans (and exotic structures on loans) to cover costs of exercising options and any associated tax hit. EquityZen is a private company marketplace that led the second wave of VC-backed secondary markets starting early 2013. The mission is to help achieve liquidity for employees and other private company shareholder, but in a company-approved way. EquityZen transacts with share transfers and also a proprietary derivative structure which transfers economics of a company's shares without changing voting and information rights. This structure typically makes the transfer process cheaper and faster as less paperwork is involved. Accredited investors find the process appealing because they get access to companies they usually cannot with small check sizes. To address the questions in Dzt's post: 1). EquityZen doesn't take a 'loan shark' approach meaning they don't front shareholders money so that they can purchase their stock. With EquityZen, you’re either selling your shares or selling all the economic risk—upside and downside—in exchange for today’s value. 2). EquityZen only allows company approved deals on the platform. As a result, companies are more friendly towards the process and they tend to allow these deals to take place. Non-company approved deals pose risks for buyers and sellers and are ultimately unsustainable. As a buyer, without company blessing, you’re taking on significant counterparty risk from the seller (will they make good on their promise to deliver shares in the future?) or the risk that the transfer is impermissible under relevant restrictions and your purchase is invalid. As a seller, you’re running the risk of violating your equity agreements, which can have severe penalties, like forfeiture of your stock. Your shares are also much less marketable when you’re looking to transact without the company’s knowledge or approval. 3). Terms don't change depending an a shareholder's situation. EquityZen is a professional company and values all of the shareholders that use the platform. It’s a marketplace so the market sets the price. In other situations, you may be at the mercy of just one large buyer. This can happen when you’re facing a big tax bill on exercise but don’t have the cash (because you have the stock). 4). EquityZen doesn't offer loans so this is a non issue. 5). Not EquityZen! EquityZen creates a clean break from the economics. It’s not uncommon for the loan structures to use an interest component as well as some other complications, like upside participation and and also a liquidation preference. EquityZen strives for a simple structure where you’re not on the hook for the downside and you’ve transferred all the upside as well.

negative: Here is an example for you. We have a fictional company. It's called MoneyCorp. Its job is to own money, and that's all. Right now it owns $10,000. It doesn't do anything special with that $10,000 - it stores it in a bank account, and whenever it earns interest gives it to the shareholders as a dividend. Also, it doesn't have any expenses at all, and doesn't pay taxes, and is otherwise magic so that it doesn't have to worry about distractions from its mathematical perfection. There are 10,000 shares of MoneyCorp, each worth exactly $1. However, they may trade for more or less than $1 on the stock market, because it's a free market and people trading stock on the stock market can trade at whatever price two people agree on. Scenario 1. MoneyCorp wants to expand. They sell 90,000 shares for $1 each. The money goes in the same bank account at the same interest rate. Do the original shareholders see a change? No. 100,000 shares, $100,000, still $1/share. No problem. This is the ideal situation. Scenario 2: MoneyCorp sells 90,000 shares for less than the current price, $0.50 each. Do the original shareholders lose out? YES. It now has something like $55,000 and 100,000 shares. Each share is now worth $0.55. The company has given away valuable equity to new shareholders. That's bad. Why didn't they get more money from those guys? Scenario 3: MoneyCorp sells 90,000 shares for more than the current price, $2 each, because there's a lot of hype about its business. MoneyCorp now owns $190,000 in 100,000 shares and each share is worth $1.90. Existing shareholders win big! This is why a company would like to make its share offering at the highest price possible (think, Facebook IPO). Of course, the new shareholders may be disappointed. MoneyCorp is actually a lot like a real business! Actually, if you want to get down to it, MoneyCorp works very much like a money-market fund. The main difference between MoneyCorp and a random company on the stock market is that we know exactly how much money MoneyCorp is worth. You don't know that with a real business: sales may grow, sales may drop, input prices may rise and fall, and there's room for disagreement - that's why stock markets are as unpredictable as they are, so there's room for doubt when a company sells their stock at a price existing shareholders think is too cheap (or buys it at a price that is too expensive). Most companies raising capital will end up doing something close to scenario 1, the fair-prices-for-everyone scenario. Legally, if you own part of a company and they do something a Scenario-2 on you... you may be out of luck. Consider also: the other owners are probably hurt as much as you are. Only the new shareholders win. And unless the management approving the deal is somehow giving themselves a sweetheart deal, it'll be hard to demonstrate any malfeasance. As an individual, you probably won't file a lawsuit either, unless you own a very large stake in the company. Lawsuits are expensive. A big institutional investor or activist investor of some sort may file a suit if millions of dollars are at stake, but it'll be ugly at best. If there's nothing evil going on with the management, this is just one way that a company loses money from bad management. It's probably not the most important one to worry about.

negative: a) Nothing would support this company going back to $.50 per share b) Fundamentally the market for this sectors has been obliterated and the fundamentals don't look like they will improve. Similar companies experience what this one is and will be going through, they borrow the hilt and hope they can pump enough oil and sell the oil at a high price. Oil goes below, WAYYY below the price they can sell it at and even break even, so they are burning cash until they declare bankruptcy. This company is not an exception. So here is what to look at on their balance sheet: assets and liabilities. Liabilities are debt. Their debt is over 50% of their assets, that debt has interest and there is NO WAY they are making a profit. Their website's last financial statement is from September 30th.. LOL, so they haven't even released a quarterly financial statement in two quarters straight, so have they released anything? Given what we know about the dire state of the entire oil drilling industry, lets see if these guys are the exception to the rule (spoiler; they aren't) February 15th, 2015 http://www.marketwatch.com/story/strategic-oil-gas-ltd-provides-operations-update-2015-02-19-16173591 The Company prudently elected to stop the winter Muskeg drilling program     in order to preserve capital. So now they aren't even getting new assets to resale, they aren't making any money from that operation, their debt still has interest payments though. Approximately 700 Boe/d of production has been shut-in by suspending     operations at Bistcho, Cameron Hills and Larne, which are not economic     at current commodity prices. Predictable. Also, you should notice from their actual financial statements (from 6 months ago, lol) (when the price of oil was over 100% higher than it is today, lol), this company already wasn't a good performer. They have been financing themselves by doing private placements, by issuing shares to investors that are not you, and diluting the share value of ALL OTHER SHAREHOLDERS. Dead in the water. I got this from skimming their financial report, without even being familiar with how canadian companies report. Its just bad news. You shouldn't be married to this investment.

negative: "Without any highly credible anticipation of a company being a target of a pending takeover, its common stock will normally trade at what can be considered non-control or ""passive market"" prices, i.e. prices that passive securities investors pay or receive for each share of stock. When there is talk or suggestion of a publicly traded company's being an acquisition target, it begins to trade at ""control market"" prices, i.e. prices that an investor or group of them is expected to pay in order to control the company.  In most cases control requires a would-be control shareholder to own half a company's total votes (not necessarily stock) plus one additional vote and to pay a greater price than passive market prices to non-control investors (and sometimes to other control investors). The difference between these two market prices is termed a ""control premium.""  The appropriateness and value of this premium has been upheld in case law, with some conflicting opinions, in Delaware Chancery Court (see the reference below; LinkedIn Corp. is incorporated in the state), most other US states' courts and those of many countries with active stock markets. The amount of premium is largely determined by investment bankers who, in addition to applying other valuation approaches, review most recently available similar transactions for premiums paid and advise (formally in an ""opinion letter"") their clients what range of prices to pay or accept. In addition to increasing the likelihood of being outbid by a third-party, failure to pay an adequate premium is often grounds for class action lawsuits that may take years to resolve with great uncertainty for most parties involved. For a recent example and more details see this media opinion and overview about Dell Inc. being taken private in 2013, the lawsuits that transaction prompted and the court's ruling in 2016 in favor of passive shareholder plaintiffs.  Though it has more to do with determining fair valuation than specifically premiums, the case illustrates instruments and means used by some courts to protect non-control, passive shareholders. ========== REFERENCE As a reference, in a 2005 note written by a major US-based international corporate law firm, it noted with respect to Delaware courts, which adjudicate most major shareholder conflicts as the state has a disproportionate share of large companies in its domicile, that control premiums may not necessarily be paid to minority shareholders if the acquirer gains control of a company that continues to have minority shareholders, i.e. not a full acquisition: Delaware case law is clear that the value of a dissenting [target company's]   stockholder’s shares is not to be reduced to impose a minority   discount reflecting the lack of the stockholders’ control over the   corporation. Indeed, this appears to be the rationale for valuing the   target corporation as a whole and allocating a proportionate share of   that value to the shares of [a] dissenting stockholder [exercising his appraisal rights in seeking to challenge the value the target company's board of directors placed on his shares]. At the same   time, Delaware courts have suggested, without explanation, that the   value of the corporation as a whole, and as a going concern, should   not include a control premium of the type that might be realized in a   sale of the corporation."

negative: "Well, they don't ""make"" money in the sense of income, but they receive money in exchange for shares of stock (more of the company is owned by the public).  The Warrant entitles the holder to purchase stock directly from the company at a fixed price.  It is very much like an open-market call option, but instead of the option holder buying stock from a third party (which does not affect the company at all), the holder buys it directly from the company, increasing the number of shares outstanding, and the proceeds go directly to the company. If the holders do not exercise the warrants, the company does not receive any cash, but they also don't issue any new shares."

negative: Why do companies exist? Well, the corporate charter describes why the company exists. Usually the purpose is to enrich the shareholders. The owners of a company want to make money, in other words. There are a number of ways that a shareholder can make money off a stock: As such, maintaining the stock price and dividend payouts are generally the number one concern for any company in the long term. Most of the company's business is going to be directed towards making the company more valuable for a future buyout, or more valuable in terms of what it can pay its shareholders directly. Note that the company doesn't always need to be worried about the specifics of the day-to-day moves of the stock. If it keeps the finances in line - solid profits, margins, earnings growth and the like - and can credibly tell people that it's generally a valuable business, it can usually shrug off any medium-term blips as market craziness. Some companies are more explicitly long-term about things than others (e.g. Berkshire Hathaway basically tells people that it doesn't care all that much about what happens in the short term).  Of course, companies are abstractions, and they're run by people. To make the people running the company worry about the stock price, you give them stock. Or stock options, or something like that. A major executive at a big company is likely to have a significant amount of stock. If the company does well, he does well; if it does poorly, he does poorly. Despite a few limitations, this is really a powerful incentive. If a company is losing a lot of money, or if its profits are falling so it's just losing a lot of its value as a business, the owners (stockholders) tend to get upset, and may vote in new management, or launch some sort of shareholder lawsuit. And, as previously noted, to raise funds, a company can also issue new shares to the market as a secondary offering as well (and they can issue fewer shares if the price is high - meaning that whatever the company is worth afterward, the existing owners own proportionally more of it).

negative: "Yes, there are a lot of places you can research stocks online, Google Finance, Yahoo Finance, Reuters etc. It's important to understand that the price of the stock doesn't actually mean anything.  Share price is just a function of the market capitalization divided by the number of shares outstanding.  As an example take two companies that are both worth $1 million, but Company A has issued 10,000 shares and Company B has issued 100,000 shares.  Company A has a share price of $100 while Company B has a share price of just $10.  Comparing share price does nothing to indicate the relative value or health of Company A versus Company B.   I know there are supposed to be no product recommendations but the dictionary area of investopedia.com is a good source of beginner investing information.  And as Joe points out below the questions here with the ""stock"" tag would also be a good place to start.  And while I'm on a roll, the book ""A Random Walk Down Wall Street"" is a good starting point in investing in the stock market."

negative: "This question drives at what value a shareholder actually provides to a corporation, and by extent, to the economy. If you subscribe for new shares (like in an Initial Public Offering), it is very straightforward to say ""I have provided capital to the corporation, which it is using to advance its business."" If you buy shares that already exist (like in a typical share purchase on a public exchange), your money doesn't go to the company. Instead, it goes to someone who paid someone who paid someone who paid someone (etc.) who originally contributed money to the corporation.  In theory, the value of a share price does not directly impact the operation of the company itself, apart from what @DanielCarson aptly noted (employee stock options are affected by share price, impacting morale, etc.). This is because in theory, the true value of a company (and thus, the value of a share) is the present value of all future cashflows (dividends + final liquidation). This means that in a technical sense, a company's share price should result from the company's value. The company's true value does not result from the share price. But what you are doing as a shareholder is impacting the liquidity available to other potential investors (also as mentioned by @DanielCarson, in reference to the desirability for future financing). The more people who invest their money in the stock market, the more liquid those stocks become. This is the true value you add to the economy by investing in stocks - you add liquidity to the market, decreasing the risk of capital investment generally. The fewer people there are who are willing to invest in a particular company, the harder it is for an investor to buy or sell shares at will. If it is difficult to sell shares in a company, the risk of holding shares in that company is higher, because you can't ""cash out"" as easily. This increased risk then does change the value of the shares - because even though the corporation's internal value is the same, the projected cashflows of the shares themselves now has a question mark around the ability to sell when desired. Whether this actually has an impact on anything depends on how many people join you in your declaration of ethical investing. Like many other forms of social activism, success relies on joint effort. This goes beyond the direct and indirect impacts mentioned above; if 'ethical investing' becomes more pronounced, it may begin to stigmatize the  target companies (fewer people wanting to work for 'blacklist' corporations, fewer people buying their products, etc.)."

negative: I'm really unsure what you are trying to tell me. I don't see how knowing CEOs would aid me in forming an opinion on this issue.  Your second statement is simply foolish, shares of a company, represent ownership. Therefore shareholders are the owners.  These shareholders elect a board, this board acts like a proxy between the managers (CEO's) and the owners (shareholders).  This is how every public company operates.   The problem that arises is that managers have an incentive to act in their own best interests, not in the interests of shareholders.  So to solve this manager compensation is aligned with company performance so that if the shareholders are better off the managers are better off.

negative: "In its basic form, a corporation is a type of 'privileged democracy'. Instead of every citizen having a vote, votes are allocated on the basis of share ownership. In the most basic form, each share you own gives you 1 vote. In most public companies, very few shareholders vote [because their vote is statistically meaningless, and they have no particular insight into what they want in their Board]. This means that often the Board is voted in by a ""plurality"" [ie: 10%-50%] of shareholders who are actually large institutions (like investment firms or pension funds which own many shares of the company). Now, what do shareholders actually ""vote on""? You vote to elect individuals to be members of the Board of Directors (""BoD""). The BoD is basically an overarching committee that theoretically steers the company in whatever way they feel best represents the shareholders (because if they do not represent the shareholders, they will get voted out at the next shareholder meeting). The Board members are typically senior individuals with experience in either that industry or a relevant one (ie: someone who was a top lawyer may sit on the BoD and be a member of some type of 'legal issues committee'). These positions typically pay some amount of money, but often they are seen as a form of high prestige for someone nearing / after retirement. It is not typically a full time job. It will typically pay far, far less than the role of CEO at the same company.  The BoD meets periodically, to discuss issues regarding the health of the company. Their responsibility is to act in the interests of the shareholders, but they themselves do not necessarily own shares in the company. Often the BoD is broken up into several committees, such as an investment committee [which reviews and approves large scale projects], a finance committee [which reviews and approves large financial decisions, such as how to get funding], an audit committee [which reviews the results of financial statements alongside the external accountants who audit them], etc. But arguably the main role of the BoD is to hire the Chief Executive Officer and possibly other high level individuals [typically referred to as the C-Suite executives, ie Chief Financial Officer, Chief Operating Officer, etc.] The CEO is the Big Cheese, who then typically has authority to rule everyone below him/her. Typically there are things that the Big Cheese cannot do without approval from the board, like start huge investment projects requiring a lot of spending.  So the Shareholders own the company [and are therefore entitled to receive all the dividends from profits the company earns] and elects members of the Board of Directors, the BoD oversees the company on the Shareholders' behalf, and the CEO acts based on the wishes of the BoD which hires him/her. So how do you get to be a member of the Board, or the CEO? You become a superstar in your industry, and go through a similar process as getting any other job. You network, you make contacts, you apply, you defend yourself in interviews. The shareholders will elect a Board who acts in their interests. And the Board will hire a CEO that they feel can carry out those interests. If you hold a majority of the shares in a company, you could elect enough Board members that you could control the BoD, and you could then be guaranteed to be hired as the CEO. If you own, say, 10% of the shares you will likely be able to elect a few people to the Board, but maybe not enough to be hired by the Board as the CEO.  Short of owning a huge amount of a company, therefore, share ownership will not get you any closer to being the CEO."

negative: Companies are expected to make a profit, otherwise there is no point to their existence and no motivation for investment. That profit comes back to shareholders as growth and/or dividend. If a company is doing well and has a healthy profit to turn back into investment to facilitate increased future earnings, it increases shareholder equity and share price. If a company is doing well and has a healthy profit to pay out in dividend, it makes the shares more attractive to investors which pushes the price up. Either way, shares go up. Share prices drop when companies lose money, or there are market disturbances affecting all companies (recessions), or when individual companies fail. Averaged over all companies over the long term (decades), stocks can be reasonably expected to go up.

negative: "Thanks for your question Dai. The circumstances under which these buyouts can occur is based on the US takeover code and related legislation, as well as the laws of the state in which the company is incorporated. It's not actually the case that a company such as Dell needs to entice or force every shareholder to sell. What is salient is the conditions under which the bidder can acquire a controlling interest in the target company and effect a merger. This usually involves acquiring at least a majority of the outstanding shares. Methods of Acquisition The quickest way for a company to be acquired is the ""One Step"" method. In this case, the bidder simply calls for a shareholder vote. If the shareholders approve the terms of the offer, the deal can go forward (excepting any legal or other impediments to the deal). In the ""Two-Step"" method, which is the case with Dell, the bidder issues a ""tender offer"" which you mentioned, where the current shareholders can agree to sell their shares to the bidder, usually at a premium. If the bidder secures the acceptance of 90% of the shares, they can immediately go forward with what is called a ""short form"" merger, and can effect the merger without ever calling for a shareholder meeting or vote. Any stockholders that hold out and do not want to sell are ""squeezed out"" once the merger has been effected, but retain the right to redeem their outstanding shares at the valuation of the tender offer. In the case you mentioned, if shareholders controlling 25% of the shares (not necessarily 25% of the shareholders) were to oppose the tender offer, there would be serveral alternatives. If the bidder did not have at least 51% of the shares secured, they would likely either increase the valuation of the tender offer, or choose to abandon the takeover. If the bidder had 51% or more of the shares secured, but not 90%, they could issue a proxy statement, call for a shareholder meeting and a vote to effect the merger. Or, they could increase the tender offer in order to try to secure 90% of the shares in order to effect the short form merger. If the bidder is able to secure even 51% of the shares, either through the proxy or by way of a controlling interest along with a consortium of other shareholders, they are able to effect the merger and squeeze out the remaining shareholders at the price of the tender offer (majority rules!). Some states' laws specify additional circumstances under which the bidder can force the current shareholders to exchange their shares for cash or converted shares, but not Delaware, where Dell is incorporate. There are also several special cases. With a ""top-up"" provision, if the company's board/management is in favor of the merger, they can simply issue more and more shares until the bidder has acquired 90% of the total outstanding shares needed for the ""short form"" merger. Top-up provisions are very common in cases of a tender offer. If the board/management opposes the merger, this is considered a ""hostile"" takover, and they can effect ""poison pill"" measures which have the opposite effect of a ""top-up"" and dilute the bidders percent of outstanding shares. However, if the bidder can secure 51% of the shares, they can simply vote to replace the current board, who can then replace the current management, such that the new board and management will put into place whatever provisions are amenable to the bidder. In the case of a short form merger or a vote to effect a merger, the shareholders who do not wish to sell have the right to sell at the tender price, or they can oppose the deal on legal grounds by arguing that the valuation of the tender offer is materially unfair. However, there are very few cases which I'm aware of where this type of challenge has been successful. However, they do not have the power to stop the merger, which has been agreed to by the majority of the shareholders. This is similar to how when the president is elected, the minority voters can't stop the new president from being inaugurated, or how you can be affected if you own a condo and the condo owners' association votes to change the rules in a way you don't like. Tough luck for you if you don't like it! If you want more detail, I'd recommend checking out a web guide from 2011 here as well as related articles from the Harvard Law blog here. I hope that helps!"

negative: You have a lot of different questions in your post - I am only responding to the request for how to value the ESPP. When valuing an ESPP, don't think about what you might sell the shares for in the future, think about what the market would charge you for that option today. In general, an option is worth much less than the underlying share itself. For the simplest example, assume you work at a public company, and your exercise price for your options is $.30, and you can only exercise those options until the end of today, and the cost of the shares on the public stock exchange is also $.30. You have the same 'strike price' as everyone else in the market, making your option worth nothing. In truth, holding that right to a specific strike price into the future does give you value, because it means you can realize the upside in share price gains, without risking any money on share losses. So, how do you value the options? If it's a public company with an active options market, you can easily compare your $.30 strike price with the value of call options in the market that have a $.30 strike price. That becomes the value to you of the option (caveat: it is unlikely you can find an exact match for the terms of your vesting period, but you should be able to find a good starting point). If it's a public company without an active options market, you will have to do a bit of estimation. If a current share is worth $.25 (so, close to your strike price), then your option is worth a little bit, but not much. Compare other shares in your industry / company size to get examples of the relative value between an option and a share. If the current share price is worth $.35, then your option is worth about $.05 [the $.05 profit you could get by immediately exercising and selling, plus a bit more for an option on a share that you can't buy in the open market]. If it's a private company, then you need to be very clear on how shares are to be valued, and what methods you have available to sell back to the company / other individuals. You can then consider as per above, how to value the option for a share, vs the share itself. Without a clear way to sell your shares of a private company [ideally through a sale directly back to the company that you are able to force them to agree on; ie: the company will buyback shares at 5x Net income for the previous year, or something like that], then the value of a small number of shares is very nebulous. There is an extremely limited market for shares of private companies, if you don't own enough to exert control. In your case, because the valuation appears to be $2/share [be sure that these are the same share classes you have the option to buy], your option would be worth a little more than $1.70, if you didn't have to wait 4 years to exercise it. This would be total compensation of about $10k, if you were able to exercise today. Many people don't end up working for an early job in their career for 4 years, so you need to consider whether how much that will reduce the value of the ESPP for you personally. Compared with salary of 90k, 10k worth of stock in 4 years may not be a heavy motivating compensation consideration. Note also that because the company is not public, the valuation of $2/share should be taken with a grain of salt.

negative: Running for-profit business doesn't pressure those involved to make the best product, it pressures them to make the best profit.  Making the best profit pressures those involved to produce the cheapest product that the market won't reject marked at the highest price the market won't reject.  Private companies have the freedom to avoid or limit the effect of that pressure if they choose, and sacrifice some profit for quality and improved customer satisfaction (though many still choose profit).  Public companies, who are eventually beholdent to shareholders who sole goal is profitability, are much less likely to avoid the pressures to increase profits at all costs;  particularly in the age of day traders and CEO merry-go-round, long-term planning is very difficult when short-term profitability is on the line.  A company that made one widget a year for $1 and sold that widget for $10 billion would be a very successful company from the profit standpoint, and would likely have an excellent share price if the business model looked secure for the next year or two.  Competition helps alleviate this morass and pushes for better products and lower prices by upping the bar of what the market will reject over time - increase the available alternatives, and the features/quality/price scale shifts.  The importance of having a level playing field, anti-monopoly laws and ensure that new players can come onto the scene is fundamental to capitalism working - otherwise those who hold monopoly positions will prevent competition from emerging and charge as much as is possible for the cheapest product people will still buy.  This is of particular issue when not buying the product is a threat to one's life or safety (medical care, emergency services, food, etc).

negative: "The market capitalization of a stock is the number of shares outstanding (of each stock class), times the price of last trade (of each stock class). In a liquid market (where there are lots of buyers and sellers at all price points), this represents the price that is between what people are bidding for the stock and what people are asking for the stock.  If you offer any small amount more than the last price, there will be a seller, and if you ask any small amount less than the last price, there will be a buyer, at least for a small amount of stock. Thus, in a liquid market, everyone who owns the stock doesn't want to sell at least some of their stock for a bit less than the last trade price, and everyone who doesn't have the stock doesn't want to buy some of the stock for a bit more than the last trade price. With those assumptions, and a low-friction trading environment, we can say that the last trade value is a good midpoint of what people think one share is worth.  If we then multiply it by the number of shares, we get an approximation of what the company is worth. In no way, shape or form does it not mean that there is 32 billion more invested in the company, or even used to purchase stock. There are situations where a 32 billion market cap swing could mean 32 billion more money was invested in the company: the company issues a pile of new shares, and takes in the resulting money.  People are completely neutral about this gathering in of cash in exchange for dilluting shares.  So the share price remains unchanged, the company gains 32 billion dollars, and there are now more shares outstanding. Now, in some sense, there is zero dollars currently invested in a stock; when you buy a stock, you no longer have the money, and the money goes to the person who no longer has the stock. The issue here is the use of the continuous tense of ""invested in""; the investment was made at some point, but the money doesn't really stay in this continuous state of being.  Unless you consider the investment liquid, and the option to take money out being implicit, it being a continuous action doesn't make much sense. Sometimes the money is invested in the company, when the company causes stocks to come into being and sells them. The owners of stocks has invested money in stocks in that they spent that money to buy the stocks, but the total sum of money ever spent on stocks for a given company is not really a useful value. The market capitalization is an approximation, which under the efficient market hypothesis (that markets find the correct price for things nearly instantly) is reasonably accurate, of the value the company has collectively to its shareholders.  The efficient market hypothesis isn't accurate, but it is an acceptable rule of thumb. Now, this value -- market capitalization -- is arguably not the total value of a company: other stakeholders include bond holders, labour, management, various contract counter-parties, government and customers.  Some companies are structured so that almost all value is captured not by the stock owners, but by contract counter-parties (this is sometimes used for hiding assets or debts). But for most large publically traded companies, it (in theory) shouldn't be far off."

negative: "I think it's easiest to illustrate it with an example... if you've already read any of the definitions out there, then you know what it means, but just don't understand what it means.  So, we have an ice cream shop. We started it as partners, and now you and I each own 50% of the company. It's doing so well that we decide to take it public.  That means that we will be giving up some of our ownership in return for a chance to own a smaller portion of a bigger thing. With the money that we raise from selling stocks, we're going to open up two more stores.  So, without getting into too much of the nitty gritty accounting that would turn this into a valuation question, let's say we are going to put 30% of the company up for sale with these stocks, leaving you and me with 35% each. We file with the SEC saying we're splitting up the company ownership with 100,000 shares, and so you and I each have 35,000 shares and we sell 30,000 to investors.  Then, and this depends on the state in the US where you're registering your publicly traded corporation, those shares must be assigned a par value that a shareholder can redeem the shares at. Many corporations will use $1 or 10 cents or something nominal.  And we go and find investors who will actually pay us $5 per share for our ice cream shop business. We receive $150,000 in new capital. But when we record that in our accounting, $5 in total capital per share was contributed by investors to the business and is recorded as shareholder's equity. $1 per share (totalling $30,000) goes towards actual shares outstanding, and $4 per share (totalling $120,000) goes towards capital surplus.  These amounts will not change unless we issue new stocks. The share prices on the open market can fluctuate, but we rarely would adjust these. Edit: I couldn't see the table before. DumbCoder has already pointed out the equation Capital Surplus = [(Stock Par Value) + (Premium Per Share)] * (Number of Shares) Based on my example, it's easy to deduce what happened in the case you've given in the table. In 2009 your company XYZ had outstanding Common Stock issued for $4,652. That's probably (a) in thousands, and (b) at a par value of $1 per share. On those assumptions we can say that the company has 4,652,000 shares outstanding for Year End 2009.  Then, if we guess that's the outstanding shares, we can also calculate the implicit average premium per share: 90,946,000 ÷ 4,652,000 == $19.52. Note that this is the average premium per share, because we don't know when the different stocks were issued at, and it may be that the premiums that investors paid were different. Frankly, we don't care.  So clearly since ""Common Stock"" in 2010 is up to $9,303 it means that the company released more stock. Someone else can chime in on whether that means it was specifically a stock split or some other mechanism... it doesn't matter. For understanding this you just need to know that the company put more stock into the marketplace... 9,303 - 4,652 == 4,651(,000) more shares to be exact. With the mechanics of rounding to the thousands, I would guess this was a stock split.  Now. What you can also see is that the Capital Surplus also increased. 232,801 - 90,946 == 141,855. The 4,651,000 shares were issued into the market at an average premium of 141,855 ÷ 4,651 == $30.50. So investors probably paid (or were given by the company) an average of $31.50 at this split.  Then, in 2011 the company had another small adjustment to its shares outstanding. (The Common Stock went up). And there was a corresponding increase in its Capital Surplus.  Without details around the actual stock volumes, it's hard to get more exact. You're also only giving us a portion of the Balance Sheet for your company, so it's hard to go into too much more detail. Hopefully this answers your question though."

negative: "Just skimming through the Wikipedia article on airberlin, I notice there is more to the story than simply ""airberlin's IPO failed, so they postponed it and did it anyways."" 3 points to keep in mind about IPOs:  1) An IPO is the mechanism for taking a private company and setting it up for shares to be owned by ""the public"".  2) The process of selling shares to the public often allows original owners and/or early investors to ""cash out"". Most countries (including member nations of the EU) limit some transactions like pre-IPO companies to ""accredited investors"".  3) Selling shares to the public also can allow the company to access more funds for growth. This is particularly important in a capital-intensive business like an airline; new B737-MAX costs >$110M. New A320neo costs >$105M USD.  Ultimately, the question of a successful IPO depends on how you define success. Initially, there was a lot of concern that the IPO was set up with too much focus on goal #2... allowing the management & owners to cash out.  It looks like the first approach was not meeting good opinions in the market during 2006. A major concern was that the initial approach focused on management only cashing out its shares and no money actually going to the company to support its future.  The investment bankers restructured the IPO, including the issuance of more new shares so that more $ could end up in the company's accounts, not just in the accounts of the management.  If anything, it's still a pretty successful IPO given that the shares were successfully listed, the company collected the money it needed to invest and grow, and the management still cashed out."

negative: "Something to note is that when a company announces a share buyback program there is usually a time frame and amount of shares that are important details as it isn't like the company will make one big buy back of stock generally.  Rather it may take months or even years as noted in the Wikipedia article about share repurchases. Wikipedia covers some of the technical details here but to give a specific set of answers: When a company announces a share buyback program, who do they actually   buy back the shares from?  From the Wikipedia link: ""Under US corporate law there are five primary methods of stock repurchase: open market, private negotiations, repurchase 'put' rights, and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction."" Thus, there are open market and a couple of other possibilities. Openly traded shares on a stock exchange?  Possibly, though there are other options. Is there a fixed price that   they buy back at? Sometimes.  I'd think a ""fixed price tender offer"" would imply a fixed price though the open market way may take various prices. If I own shares in that company, can I get them to buy back my shares? Selective Buy-Backs is noted in Wikipedia as: ""In broad terms, a selective buy-back is one in which identical offers are not made to every shareholder, for example, if offers are made to only some of the shareholders in the company. In the US, no special shareholder approval of a selective buy-back is required. In the UK, the scheme must first be approved by all shareholders, or by a special resolution (requiring a 75% majority) of the members in which no vote is cast by selling shareholders or their associates. Selling shareholders may not vote in favor of a special resolution to approve a selective buy-back. The notice to shareholders convening the meeting to vote on a selective buy-back must include a statement setting out all material information that is relevant to the proposal, although it is not necessary for the company to provide information already disclosed to the shareholders, if that would be unreasonable."" Thus it is possible, though how probable is another question. While not in the question, something to consider is how the buybacks can be done as a result of offsetting the dilution of employees who have stock options that may exercise them and spread the earnings over more shares, but this is more on understanding the employee stock option scenario that various big companies use when it comes to giving employees an incentive to help the stock price."

negative: "From Wikipedia - Stock: The stock (also capital stock) of a corporation constitutes the equity   stake of its owners. It represents the residual assets of the company   that would be due to stockholders after discharge of all senior claims   such as secured and unsecured debt. Stockholders' equity cannot be   withdrawn from the company in a way that is intended to be detrimental   to the company's creditors Wikipedia - Dividend: A dividend is a payment made by a corporation to its shareholders,   usually as a distribution of profits. When a corporation earns a   profit or surplus, it can re-invest it in the business (called   retained earnings), and pay a fraction of this reinvestment as a   dividend to shareholders. Distribution to shareholders can be in cash   (usually a deposit into a bank account) or, if the corporation has a   dividend reinvestment plan, the amount can be paid by the issue of   further shares or share repurchase. Wikipedia - Bond: In finance, a bond is an instrument of indebtedness of the bond issuer   to the holders. It is a debt security, under which the issuer owes the   holders a debt and, depending on the terms of the bond, is obliged to   pay them interest (the coupon) and/or to repay the principal at a   later date, termed the maturity date. Interest is usually payable   at fixed intervals (semiannual, annual, sometimes monthly). Very often   the bond is negotiable, i.e. the ownership of the instrument can be   transferred in the secondary market. This means that once the transfer   agents at the bank medallion stamp the bond, it is highly liquid on   the second market. Thus, stock is about ownership in the company, dividends are the payments those owners receive, which may be additional shares or cash usually, and bonds are about lending money. Stocks are usually bought through brokers on various stock exchanges generally. An exception can be made under ""Employee Stock Purchase Plans"" and other special cases where an employee may be given stock or options that allow the purchase of shares in the company through various plans. This would apply for Canada and the US where I have experience just as a parting note. This is without getting into Convertible Bond that also exists: In finance, a convertible bond or convertible note or convertible debt   (or a convertible debenture if it has a maturity of greater than 10   years) is a type of bond that the holder can convert into a specified   number of shares of common stock in the issuing company or cash of   equal value. It is a hybrid security with debt- and equity-like   features.  It originated in the mid-19th century, and was used by   early speculators such as Jacob Little and Daniel Drew to counter   market cornering. Convertible bonds are most often issued by   companies with a low credit rating and high growth potential."

negative: I was doing some thinking about this a while back, and it makes absolute perfect sense for Amazon to buy UPS with issued shares.  First off, Amazon's stock is overpriced in every form of the word, which means using issued stocks to buy things is the best way to abuse the current situation. It gives even more validity to their share price. Some examples... If lets say Amazon issued 1 extra share for every existing share, it would give them 235 billion of purchasing power. If they used this to buy 235 billion worth of utility companies, the stock price cannot really go down below 235 billion in market cap, because they own 235 billion in real, valuable companies. So if a completely worthless company like the South Seas Company issued stock to buy real businesses, they could make validity to their absurd price. If the South Seas Company had a market cap of 500 billion at their high, and issued 1 share per existing share, and bought 250 billion dollars of businesses and assets, they suddenly became a real company and cannot really go under a market cap of 250 billion. Too bad they didn't, and the company went under almost instantly once the scam was found out.   By buying UPS, they gain the company at a discount of the discrepancy of Amazon's price and intrinsic value. But the biggest reason to merge with UPS is for their current customers. So with deliveries, Amazon would have to spend the same amount on their route as UPS. They still have to hire a driver for 8 hours a day, they still have to pay for the same amount of gas, and they stop at more or less the same amount. So your expenses are fixed. Any extra package that Amazon would deliver that they wouldn't before, is almost pure profit. The expenses don't change if the truck is 3/4 full, or full. Which means that all of UPS's business would become almost pure profit. They need to buy UPS or Fedex, making a new service is a huge mistake. It's probably just a bargaining chip in negotiation because of these reasons.  Also a side note, Amazon should also buy a huge railroad. They have a part in every inch of this country, and to buy its own method of transportation to transport boxes, which is more fuel and time efficient than trucks makes sense. They would also be able to design a lighter weight train designed to just carry boxes. Sending one truck to a warehouse is much more costly than just attaching a light weight train car heading to that warehouse anyways.   Just my two cents if I were CEO of Amazon.

negative: "Changing my answer based on clarification in comments. It appears that some of the securities you mentioned, including GEAPP, are traded on what is colloquially known as the Grey Market. Grey Sheets, and also known as the ""Gray Market"" is another category of OTC stocks that is completely separate from Pink Sheets and the OTCBB.  From investopedia The grey market is an over-the-counter market where dealers may execute orders for preferred customers as well as provide support for a new issue before it is actually issued. This activity allows underwriters and the issuer to determine demand and price the securities accordingly before the IPO.  Some additional information on this type of stocks. (Source) Unlike other financial markets... No recent bid or ask quotes are available because no market makers share data or quote such stocks. There is no quoting system available to record and settle trades. All Grey sheet trading is moderated by a broker and done between consenting individuals at a price they agree on. The only documentation that can be publicly found regarding the trades is when the last trade took place. No SEC registration and little SEC regulation. Regulation of Grey Sheet stocks takes place mainly on a state level. Unlike Pink Sheets, these stocks have no SEC registration to possess a stock symbol or to possess shares or trade shares of that stock. Such penny stocks, similar to Pink Sheets, are not required to file SEC (Securities and Exchange Commission) financial and business reports. These stocks may not be solicited or advertised to the public unless a certain number of shares are qualified to be traded publicly under 504 of Regulation D. Extremely Illiquid. Gray sheet trading is infrequent, and for good reason... Difficult to trade, not advertised, difficult to follow the price, the least regulation possible, hard to find any information on the stock, very small market cap, little history, and most such stocks do not yet offer public shares. The lack of information (bids, history, financial reports) alone causes most investors to be very skeptical of Gray Sheets and avoid them altogether.  Gray Sheets are commonly associated with Initial public offering (IPO) stocks or start up companies or spin-off companies, even though not all are IPO's, start-ups or spin-offs. Grey Sheets is also Home to delisted stocks from other markets. Some stocks on this financial market were once traded on the NASDAQ, OTCBB, or the Pink Sheets but ran into serious misfortune - usually financial - and thus failed to meet the minimum requirements of the registered SEC filings and/or stock exchange regulations for a financial market. Such stocks were delisted or removed and may begin trading on the Grey Sheets.  So to answer your question, I think the cause of the wild swings is that:   Great question, BTW."

negative: It's a dilution of the ownership; the public used to own x% of Facebook and now they own less than x% of the bigger Facebook that incorporates Whatsapp (assuming that Whatsapp was completely private before). Logically, the $15 billion is allocated proportionately between the existing stockholders (x% of it for the general public, y% for Mark Zuckerberg, etc).  However it doesn't really make sense to think of it that way unless Whatsapp is actually worthless. What's important are the proportions. Suppose that the newly issued shares correspond to 25% of the previous share capital. Then previously the general public owned x% out of 100%, and now they own x% out of 125%, i.e. (0.8x)% of the new share capital. Whether the actual value of those stocks has changed depends entirely on the actual value that Whatsapp adds to the old Facebook. As Dheer says, only time will tell on that one. Apart from the financial consequences, dilution is sometimes considered important because it can mean a change in influence: a significant shareholder would often be able to encourage the company to act in a certain way. With a lower percentage ownership, that influence is diminished.

negative: As Mhoran said, the risks of buying a bankrupt company are huge, and even successful bankruptcy turnarounds don't involve keeping the same stock. For instance, the GM bankruptcy was resolved by the company more or less selling all its valuable assets (brands, factories, inventory) to a new version of itself, using that money to pay off what liabilities it could, and then dissolving. The new company then issued new stock, and you had to buy the new stock to see it rise; the old stock became worthless. AA could have gone the same way; Delta could have bought it out of bankruptcy and consumed it outright, with any remaining shareholders being paid off at market value. That's probably the best the market was hoping for. Instead, the deal is a much more equal merger; AMR brings a very large airport network and aircraft fleet to the table, and Delta brings its cash, an also-considerable fleet and network, and a management team that's kept that airline solvent. The stockholders, therefore, expect to be paid off at a much higher per-share price, either in a new combined stock, in Delta stock, or in cash.

negative: If you are looking to re-invest it in the same company, there is really no difference. Please be aware that when a company announces dividend, you are not the only person receiving the dividend. The millions of share holders receive the same amount that you did as dividend, and of course, that money is not falling from the sky. The company pays it from  their profits. So the day a dividend is announced, it is adjusted in the price of the share. The only reason why you look for dividend in a company is when you need liquidity. If a company does not pay you dividend, it means that they are usually using the profits to re-invest it in the business which you are anyway going to do with the dividend that you receive. (Unless its some shady company which is only established on paper. Then they might use it to feed their dog:p).  To make it simpler lets assume you have Rs.500 and you want to start a company which requires Rs 1000 in capital : - 1.) You issue 5 shares worth Rs 100 each to the public and take Rs 100 for each share. Now you have Rs 1000 to start your company. 2.) You make a profit of Rs 200. 3.) Since you own majority of the shares you get to make the call whether to pay Rs.200 in dividend, or re-invest it in the business. Case 1:- You had issued 10 shares and your profit is Rs 200. You pay Rs. 20 each to every share holder. Since you owned 5 shares, you get 5*20 that is Rs.100 and you distribute the remaining to your 5 shareholders and expect to make the same or higher profit next year. Your share price remains at Rs.100 and you have your profits in cash. Case 2:- You think that this business is awesome and you should put more money into it to make more. You decide not to pay any dividend and invest the entire profit into the business. That way your shareholders do not receive anything from you but they get to share profit in the amazing business that you are doing. In this case your share price is Rs. 120 ((1000+200)/10) and all your profits are re-invested in the business. Now put yourself in the shareholders shoes and see which case suits you more. That is the company you should invest in.  Please note: - It is very important to understand the business model of the company before you buy anything! Cheers,

negative: In March [The Economist](http://www.economist.com/news/briefing/21721634-how-it-shaping-up-data-giving-rise-new-economy) did a feature on data and had an interesting take on antitrust rules.   As with other laws, including tax, the statute is woefully behind the market. I think the implications of big data require the concept monopolies to be rethought. As companies can gather data across the multitude of platforms you're ok with, they are able to better understand consumers. The threat is if everyone uses google maps or waze (owned by google), Google could create a monopoly on traffic/driving/human habits data.  An analog to this is thinking about insurance. Large insurance companies can rely on huge amounts of data to model out their risk/reward on policies. This will allow them to make better decisions and price themselves better in the market than smaller competitors without this data. Some governments require large insurance companies to share data with smaller ones as a form of antitrust rules.  I agree that sheer size isn't an issue. However, I think more thought has to be put on the monopoly of data.

negative: "I don't agree that the market as a whole is a ponzi scheme, but there are some ponzi-like aspects to it. If you buy high quality stocks like Coca Cola, Johnson and Johnson, AT&T, Verizon, Kraft, Wells Fargo (the vanilla bank, not one of the crazy ones), IBM, Berkshire Hathaway etc and simply hold onto them for the next 10-20 years, you will make money. Even over the last decade, when stocks ""went nowhere"", you still came out ahead through the dividend payments. It was just at an unsatisfactory rate of return. Also ""the market"" consists of a lot more than just stocks. Corporate bonds are a big market and I always recommend people to look at bonds. If you cannot judge whether a company is credit worthy, how can you invest in the common stock? I've made a lot more money myself in the bond market than in the stock market.  However, for many stocks, they do look a lot like ponzi schemes. This is true, in particular, with many of the tech stocks (Cuban was a tech investor, so that is probably where his sentiment is coming from). You have many of these companies that create great products. However, they never have positive cash flow because all the money is spent to develop new products. As the share price goes up, the company issues new shares to fund research, stock options to employees to enrich them, etc. However, eventually, they run into a string of bad research that do not yield a new product and the share price plunges. Perhaps the company goes bankrupt. So you have a company that developed great products, but the shareholders never got a penny in dividends and the final shareholders have paper worth zero.  Take a look at Research in Motion for example. Creating the Blackberry has to be one of the biggest successes in tech over the last decade. However, has the shareholders gotten any richer? Only if they traded amongst themselves, nobody got a dividend. What happened to the many billions of dollars they made during the peak popularity years of Blackberry? It went to executives, employees, and was squandered on development that did not effectively defend the phone's dominant market position. Now the stock price is back down to the pre-prime years, and if a shareholder held onto it throughout the entire period, he would not have received a single penny. And this is a profitable enterprise, things look even more bizarre when you start looking at the tech companies that have NEVER had a positive earnings quarter and no plans to ever have positive earnings (something like Pandora comes to mind). Often, management at these more bizarre companies run the company as a toy - to play with their own ideas and to issue themselves stock as compensation. And of course, they sell a lot of the stock to cash in before they delve into the next risky venture. They have no intention of ever enriching anybody who holds into the stock in the long run. If for some reason they make money, they will put it all into their next toy project until one of them fails and wipes everything out.  If you invest in a profitable business with reasonable management, you will generally come out ahead. Some businesses get displaced by unpredictable circumstances and they go bankrupt. But on average, if a company is good at doing something and they pay out the earnings, you come out ahead. You get in trouble when businesses are good at something, and they take all the money they make and put it into doing something they are not good at. A business might only provide good cashflow for 10-20 years when the product is popular and before competitors cut into margins. If that money is squandered, the long term shareholder may ultimately have very terrible results. The long term shareholder ends up being the guy who keeps going all-in on a 80%-chance-to-win bet (that is what management is doing when they bet the company on the next unproven product), but eventually he gets zeroed out on one loss.  This is why if you look at Buffett's investments, they are all in simple businesses that spits off cash to the owner/shareholder. Businesses like soft drinks, snacks, rail roads, vanilla banking, utility-like energy companies, insurance, etc. You might be good at judging the odds of whether a business will succeed or not (aka make more money than your original investment or not). But you don't want management of that company to make a wildly different bet for you. Just because they are great at operating a company doesn't mean they are good enough at judging odds or disciplined enough to make those bets for you. I may have predicted accurately that Business X will be a great success, but if manage takes those profits and goes all in on Business Y, without giving me a chance to cash out, that may have disasterous results."

negative: "In general, I think you're conflating a lot of ideas.   The stock market is not like a supermarket.  With the exception of a direct issue, you're not buying your shares from the company or from the New York Stock Exchange you're buying from an owner of stock, Joe, Sally, a pension fund, a hedge fund, etc; it's not sitting on a shelf at the stock market. When you buy an Apple stock you don't own $10 of Apple, you own 1/5,480,000,000th of Apple because Apple has 5,480,000,000 shares outstanding.  When a the board gets together to vote on and approve a dividend the approved dividend is then divided by 5.48 billion to determine how much each owner receives.  The company doesn't pay dividends out to owners from a pot of money it received from new owners; it sold iPhones at a profit and is sending a portion of that profit to the owners of the company.   ""When you buy stock, it is claimed that you own a small portion of the   company. This statement has no backing, as you cannot exchange your   stock for the company's assets."" The statement does have backing.  It's backed by the US Judicial system.  But there's a difference between owning a company and owning the assets of the company.  You own 1/5,480,000,000 of the company and the company owns the company's assets.  Nevermind how disruptive it would be if any shareholder could unilaterally decide to sell a company's buildings or other assets. This is not a ponzi scheme because when you buy or sell your Apple stock, it has no impact on Apple, you're simply transacting with another random shareholder (barring a share-repurchase or direct issue).  Apple doesn't receive the proceeds of your private transaction, you do. As far as value goes, yes the stock market provides tons of value and is a staple of capitalism.  The stock market provides an avenue of financing for companies.  Rather than taking a loan, a company's board can choose to relinquish some control and take on additional owners who will share in the spoils of the enterprise.   Additionally, the exchanges deliver value via an unbelievable level of liquidity.  You don't have to go seek out Joe or Sally when you want to sell your Apple stock.  You don't need to put your shares on Craigslist in the hope of finding a buyer.  You don't have to negotiate a price with someone who knows you want to sell.  You just place an order at an exchange and you're aligned with a buyer.   Also understand that anything can move up or down in value without any money actually changing hands.  Say you get your hands on a pair of shoes (or whatever), they're hot on the market, very rare and sought after.  You think you can sell them for $1,000. On tonight's news it turns out that the leather is actually from humans and the CEO of the company is being indicted, the company is falling apart, etc.  Your shoes just went from $1,000 to $0 with no money changing hands (or from $1,000 to $100,000 depending on how cynical you are)."

negative: "Unrealistic assumption, but I'll play along. Ultimately, dividends would exist because some innovative shareholder of some company, at some time, would desire income from their investment and could propose the idea of sharing the profit. Like-minded investors also desiring income could vote for dividends to come into existence — or, rather, vote for a board of directors that supports enactment of the idea. (In your fictitious world, shareholders do still control the corporation, right?) In this world, though, dividends wouldn't be called ""dividends"", a terrible name that's too ""mathy"" for the inhabitants of that world. Rather, they would institute a quarterly or annual shareholder profit share. Governments would enact legislation to approve of—nay, encourage such an innovation because it becomes a new source of recurring income they can tax. Alternatively, even if the idea of a cash dividend didn't occur to anybody in that world, investors would realize the stock price is depressed and could propose and vote for the board to institute share buybacks. The company repurchasing some portion of shares periodically would provide income to shareholders participating in the buyback. If the buyback were oversubscribed, they could structure it fairly (pro-rata participation, etc.) Alternatively, shareholders would pressure the board (or fire them and vote in a new board) to put the company up for sale and find a larger buyer, who would purchase the shares for cash. This can't scale forever, though, so the pressure will increase for solutions like #1 and #2."

negative: "I agree with all the people cautioning against working for free, but I'll also have a go at answering the question: When do I see money related to that 5%? Is it only when they get   bought, or is there some sort of quarterly payout of profits? It's up to the shareholders of the company whether and when it pays dividends. A new startup will typically have a small number of people, perhaps 1-3, who between them control any shareholder vote (the founder(s) and an investor). If they're offering you 5%, chances are they've made sure your vote will not matter, but some companies (an equity partnership springs to mind) might be structured such that control is genuinely distributed. You would want to check what the particular situation is in this company. Assuming the founders/main investors have control, those people (or that person) will decide whether to pay dividends, so you can ask them their plans to realise money from the company. It is very rare for startups to pay any dividends. This is firstly because they're rarely profitable, but even when they are profitable the whole point of a startup is to grow, so there are plenty of things to spend cash on other than payouts to shareholders. Paying anything out to shareholders is the opposite of receiving investment. So unless you're in the very unusual position of a startup that will quickly make so much money that it doesn't need investment, and is planning to pay out to shareholders rather than spend on growth, then no, it will not pay out. One way for a shareholder to exit is to be bought out by other shareholders. For example if they want to get rid of you then they might make you an offer for your 5%. This can be any amount they think you'll take, given the situation at the time. If you don't take it, there may be things they can do in future to reduce its value to you (see below). If you do take it then your 5% would pay you once, when you leave. If the company succeeds, commonly it will be wholly or partly sold (either privately or by IPO). At this point, if it's wholly sold then the soon-to-be-ex-shareholders at the time will receive the proceeds of the sale. If it's partly sold then as with an investment round it's up for negotiation what happens. For example I believe the cash from an IPO of X% of the company could be taken into the company, leaving the shareholders with no immediate direct payout but (100-X)% of shares in their names that they're more-or-less free to sell, or retain and receive future dividends. Alternatively, if the company settles down as a small private business that's no longer in startup mode, it might start paying out without a sale. If the company fails, as most startups do, it will never pay anything. It's very important to remember that it's the shareholders at the time who receive money in proportion to their holding (or as defined by the company articles, if there are different classes of share). Just because you have 5% now doesn't mean you'll have 5% by that time, because any new investment into the company in the mean time will ""dilute"" your shareholding. It works like this: Note that I've assumed for simplicity that the new investment comes in at equal value to the old investment. This isn't necessarily the case, it can be more or less according to the terms of the new investment voted for by the shareholders, so the first line really is ""nominal value"", not necessarily the actual cash the founders put in. Therefore, you should not think of your 5% as 5% of what you imagine a company like yours might eventually exit for. At best, think of it as 5% of what a company like yours might exit for, if it receives no further investment whatsoever. Ah, but won't the founders also have their holdings diluted and lose control of the company, so they wouldn't do that? Well, not necessarily. Look carefully at whether you're being offered the same class of shares as the founders. If not consider whether they can dilute your shares without diluting their own. Look also at whether a new investor could use the founders' executive positions to give them new equity in the same way they gave you old equity, without giving you any new equity. Look at whether the founders will themselves participate in future investment rounds using sacks of cash that they own from other ventures, when you can't afford to keep up. Look at whether new investors will receive a priority class of share that's guaranteed at exit to pay out a certain multiple of the money invested before the older, inferior classes of shares receive anything (VCs like to do this, at least in the UK). Look at any other tricks they can legally pull: even if the founders aren't inclined to be tricky, they may eventually be forced to consider pulling them by a future new investor. And when I say ""look"", I mean get your lawyer to look. If your shareholding survives until exit, then it will pay out at exit. But repeated dilutions and investors with priority classes of shares could mean that your holding doesn't survive to exit even if the company does. Your 5% could turn into a nominal holding that hasn't really ""survived"", that entitles you to 0.5% of any sale value over $100 million. Then if the company sells for $50 million you get $0, while other investors are getting a good return. All of this is why you should not work for equity unless you can afford to work for free. And even then you need to lawyer up, now and during any future investment, so your lawyer can explain to you what your investment actually is, which almost certainly is different from what it looks like at a casual uninformed glance."