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How do shares work in a limited company?
In detail I mean for instance
Two people open a company. There’s 2 shares, one each, each owns 50 per cent of company.
But then, lets say someone else wants to invest money. How could you sell shares to them? There are only 2 shares.
Do you “add” more shares? What if you only want to give that investor 10 per cent of your company? How do you give him 10 per cent of 2 shares?
Do you have create 10 shares and give the investor 1?
Then where does the extra 7 shares go to?
Sorry if this is confusing, but the confusion i have is why I’m asking the question
3 Answers
- 3 years ago
You split the shares, so instead of owning 1 share each, they would own 5 shares each. Still 50%. Though you would probably split it into blocks of 10,000 or more. Then they would both have 4500 shares each with a 1000 going to the new investor, so the investor has 10% and they each own 45% of the company.
- MarvinatorLv 73 years ago
When a company is built and shares created, there are usually more than 2. Usually the shares are created based on percents. So if two people owned equal amounts, there would be 100 shares, 50 to each. Additional shares are only created when outside investors are required. . (And usually more than 100 shares created) If they need $100,000 worth of investment, then they would need to understand what percentage of the total company they are giving away. If it's ( your example) 10%, then they'd need to prove that the company is worth 10 times $100,000 or 1M. Then they can create the shares to bring in investor(s).
Your example is an intriguing one and one which probably happens a lot. I'm sure there are both laws and agreements in place between partners to control who and how stock purchases can be made.
