How do shareholders profit?

Discussion in 'Off-Topic' started by Lightfire, Jan 28, 2012.

  1. Lightfire

    Thread Starter Well-Known Member

    Oct 5, 2010
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    How do shareholders profit? Is it according to their share percentage?

    This is my example of hierarchy.

    Chairman - 51%
    President - 22%
    Senior Vice President - 19%
    Vice President - 8%

    And the total profit is $1,821,153.00

    Meaning that this four executives will get

    Chairman - $928,788.03
    President - $400,653.66
    Senior Vice President - $346,019.07
    Vice President - $145,692.24

    Thank you very much.
     
  2. joeyd999

    AAC Fanatic!

    Jun 6, 2011
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    Sorry, loosewire, only one of the four you mentioned necessarily needs to be a shareholder.

    EDIT: Lightfire!!!! ***Not Loosewire*** Sorry!!!
     
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  3. maxpower097

    Well-Known Member

    Feb 20, 2009
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    Or there could be no shareholders. Typically you are sent a quartly or yearly report on how the company did. You own say 1000 shares of Rosetta Stone - Loosewire Edition. Well You'll get a lengthy report about 5,000,000 copies of RS- Loosie ed. sold and you profited 50,000,000 gross. After costs and marketing your netted 18,000,000. A percentage is rolled over back into the company, and you get a certain amount per share. If there are only1000 shares out there you'll get 18,000 a share minus expenses. If there are 1,000,000 shares and you have 1000 you will get $18 per share minus expenses or rollover.
     
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  4. joeyd999

    AAC Fanatic!

    Jun 6, 2011
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    Firstly, i am sorry to have dragged loosewire into this. But he's done it to me, so I guess we're even.

    Please, maxpower, how can there be no shareholders? Even a sole-proprietorship has one shareholder -- the proprietor himself.
     
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  5. maxpower097

    Well-Known Member

    Feb 20, 2009
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    Sorry I meant to say none of those people had to be a shareholder particularly. Not that there would be no shareholders at all.
     
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  6. THE_RB

    AAC Fanatic!

    Feb 11, 2008
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    Lightfire, generally the profit is shared according to ownership percentage.

    So lets say you start a company yourself, you can get all the profit. Then later you think the comany is worth a million, so you sell a 30% share to investor1 for $300k.

    After that you get 70% of the profit, he gets 30%.

    Thats what "shares" ont he stock market are. You can go and buy a tiny piece of google today, and from that point on you own a tiny piece of google, (and a proportional piece of google's profits) it's pretty cool. They even send you company reports/figures each year showing you what your company has been up to.

    Of course what most companies do is keep most of the profits within the company (for tax benefits) and decide each year to pay only a small "dividend" to the shareholders, maybe a couple of cents per share that you own.
     
  7. Lightfire

    Thread Starter Well-Known Member

    Oct 5, 2010
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    thnx the THE RB, maxpower097 and joey999

    ok,,, i also read somewhere that the net worth should be calculated after the shareholders start to count their profit.

    Net worth=total profit minus expenses.
    is that right

    thnx.
     
  8. joeyd999

    AAC Fanatic!

    Jun 6, 2011
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    The generalized accounting formula is:

    Assets = Liabilities + Shareholder Equity

    The Shareholder Equity is the 'Net Worth' of the company.
     
  9. JMW

    Member

    Nov 21, 2011
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    A sole proprietorship, DBA "Doing Business As", has no stock. The ownership is by the proprietor and profit is taxed as income to the proprietor. Other business forms have stock. A stockholder does not "profit" from the corporation. There are two types of stock; common and preferred. Preferred has no voting rights and receive a return based on a percentage similar to a bond. Common stock holders receive dividends, and can vote for Board Members, and other issues. Dividends are the profits. They are distributed at the discretion of the Board of Directors on a quarterly basis. Dividends are taxed as "unearned income". Unearned Income, (dividends, rent, royalties, etc) is not subject to Social Security withholdings, or Medicare.
    If a stockholder buys and sells a stock within a 365 day period, he his subject to a short term capitol gains (loss) tax. If the stock is held for more than a year Long Term Capitol Gains (Losses) apply. You will have to talk to your tax advisor, about the various ramifications and thresholds.
    It is interesting that no Legislator has proposed deleting the "unearned income" category. I'm guessing this question was posed by the recent revelations of various hi income people
     
  10. tracecom

    AAC Fanatic!

    Apr 16, 2010
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    Besides dividends, which have been referred to here, the other (more common) way shareholders make money is through stock appreciation, which is an arbitrary market evaluation of the company that often has absolutely nothing to do with reality. Of course, the shareholders can also lose money when the stock depreciates instead of appreciating.

    Dividends rely on profitability (or creative accounting); appreciation relies on imagination.
     
  11. tracecom

    AAC Fanatic!

    Apr 16, 2010
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    Then, they shouldn't be stockholders, and probably won't be for long. The entire function of any corporation is to maximize the wealth of the stockholders. (Some even try to do it legally and ethically.) :)

    BTW, I noticed that lightwire actually asked about "shareholders," which could mean stockholders (i.e., those who own stock), or simply those who own a "share" of the business.
     
    Last edited: Jan 31, 2012
  12. JMW

    Member

    Nov 21, 2011
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    Appreciation (capitol gains) only come into play when the stock is sold. And this is taxed at 15% and is considered "unearned income".
     
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