How do stocks work?
If person A has 10 shares and person B buys 20 shares, doesn't person A now control a smaller percentage of shareholder's equity?
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- tiescoreLv 61 month ago
At any time a company has so many shares in existence (x). Person A owns 10/X of the company, person B owns 20/X of the company. Their percentages are based on the number of shares they have, and the number of shares in existence.
- GA41Lv 71 month ago
A company will make a stock offering to sell shares on the market. If the company issues 100 shares, people in the market buy the shares. If A bought 10 shares other people bought 90 shares so there are 100 shares still on the market. A owns 10% of the company. If B buys 20 shares on the market, he must buy them from the 90 shares. A owns 10, B owns 20 and others own 70 shares. Because there are only 100 shares outstanding, A still owns 10%.
Dilution of shares only occurs if the company issues more stock. If the company decides to issue another 100 shares, now there are 200 shares on the market and A only owns 5% of the shares instead of 10%. This may cause the values of his share to diminish, because the earnings per share will be cut in half. If the company is valued at the same P/E ratio, the value of his share will drop with the earnings.
- kswck2Lv 71 month ago
If A buys 10 Shares and B buys 20 shares, B buys them from someone else. So A still has 10 shares.
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- JudyLv 71 month ago
No, someone else owned those other 20 shares before B bought them.
- StephenWeinsteinLv 71 month ago
If there are 40 shares and person A has 10 and person C has 30 and then person B buys 20 from person C (so C has 10), then A still has the same percentage (25%).
If person B buys 20 from the corporation, then yes, A does a smaller percentage, but the corporation has the money that person B paid for the shares, so now the equity is worth more money, so A may have gained.
- Anonymous1 month ago
Not usually. That only happens if, one, person A's shares don't have a dilution guarantee from the corporation and, two, person B buys the 20 shares directly from the company as part of a subsequent issuance of stock. Both of those things have to happen for person A's proportion of ownership to go down.
- Anonymous1 month ago
No minor shareholder controls shareholders equity.
All things being equal person b owns twice the economic interest. Gets twice the dividends, if any.
Shareholders' equity represents the net worth of a company, which is the dollar amount that would be returned to shareholders if a company's total assets were liquidated, and all of its debts were repaid. Typically listed on a company's balance sheet, this financial metric is commonly used by analysts to determine a company's overall fiscal health. Shareholders' equity is also used to determine the value of ratios, such as the debt-to-equity ratio (D/E), return on equity (ROE), and the book value of equity per share (BVPS).
Not to be confused with Market Value.