How do shareholders profit?

Thread Starter

Lightfire

Joined Oct 5, 2010
690
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.
 

maxpower097

Joined Feb 20, 2009
816
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.
 

joeyd999

Joined Jun 6, 2011
5,234
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.
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.
 

THE_RB

Joined Feb 11, 2008
5,438
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.
 

Thread Starter

Lightfire

Joined Oct 5, 2010
690
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.
 

joeyd999

Joined Jun 6, 2011
5,234
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.
The generalized accounting formula is:

Assets = Liabilities + Shareholder Equity

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

JMW

Joined Nov 21, 2011
137
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
 

tracecom

Joined Apr 16, 2010
3,944
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.
 

tracecom

Joined Apr 16, 2010
3,944
A stockholder does not "profit" from the corporation.
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:

JMW

Joined Nov 21, 2011
137
Appreciation (capitol gains) only come into play when the stock is sold. And this is taxed at 15% and is considered "unearned income".
 
Top