About equity in companies??

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Marshmello's Dad
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Random question

Why do massively successful companies sell so much of their shares.

Elon Musk only owns 19% of Tesla
Mark Zuckerberg owns 29% of Facebook
Jeff Bezos owns 11% of Amazon
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Econ1906
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Funding for other investments
Reduces the risk if share prices fall or company fails
Opportunity for profit
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Marshmello's Dad
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(Original post by Econ1906)
Funding for other investments
Reduces the risk if share prices fall or company fails
Opportunity for profit
Also, when you buy a company, let's say a company is worth $10 billion but the founder of the company only has a 25% equity, do you pay 25% of the market value so $2.5 billion to replace them as the majority shareholder or do you have to buy the entire company for $10 billion.
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martin7
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(Original post by Marshmello's Dad)
Random question

Why do massively successful companies sell so much of their shares.

Elon Musk only owns 19% of Tesla
Mark Zuckerberg owns 29% of Facebook
Jeff Bezos owns 11% of Amazon
Big companies start off small, and grow. And they start off losing money for some years until they start turning a profit.

To get big, you need people to invest in the business -- and investors typically do that by buying equity in the company (effectively investing money in return for shares in the business). That way they can more effectively influence the direction that the company is taking. And once the business starts earning a profit they will benefit from any dividends that might be paid out.
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martin7
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(Original post by Marshmello's Dad)
Also, when you buy a company, let's say a company is worth $10 billion but the founder of the company only has a 25% equity, do you pay 25% of the market value so $2.5 billion to replace them as the majority shareholder or do you have to buy the entire company for $10 billion.
Up to a certain point, you can only buy shares that are for sale. So you could buy the 25% equity that the founder has, but you can't buy any more than that unless the other shareholders wish to sell to you.

As I understand it, in the UK at least, if your shareholding crosses 30% then you are required to make a takeover offer for the rest of the shares in the company. You'd typically offer a premium to the market price (so if shares are trading at £10 each, you might offer £12). At this point no one is required to sell to you. If you subsequently come to hold over 90% of the shares, you can (but don't have to) require the other shareholders to sell their shares to you (I'm not sure how the price would be determined).

To go back to your question, buying the founder's 25% share wouldn't make you the "majority shareholder" unless you already owned over 25% and thereby took your total shareholding to over 50%.
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Reality Check
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(Original post by Marshmello's Dad)
Random question

Why do massively successful companies sell so much of their shares.

Elon Musk only owns 19% of Tesla
Mark Zuckerberg owns 29% of Facebook
Jeff Bezos owns 11% of Amazon
Not always the case: Liliane Bettencourt owned 30% of L'Oreal's shares, with a further 30%-odd owned by Nestlé under a shareholder agreement.
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Reality Check
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Also, Mike Ashley ran SportsDirect as a sole trader for years!
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Marshmello's Dad
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(Original post by martin7)
Up to a certain point, you can only buy shares that are for sale. So you could buy the 25% equity that the founder has, but you can't buy any more than that unless the other shareholders wish to sell to you.

As I understand it, in the UK at least, if your shareholding crosses 30% then you are required to make a takeover offer for the rest of the shares in the company. You'd typically offer a premium to the market price (so if shares are trading at £10 each, you might offer £12). At this point no one is required to sell to you. If you subsequently come to hold over 90% of the shares, you can (but don't have to) require the other shareholders to sell their shares to you (I'm not sure how the price would be determined).

To go back to your question, buying the founder's 25% share wouldn't make you the "majority shareholder" unless you already owned over 25% and thereby took your total shareholding to over 50%.
Thank you for this information.

Also, buying 25% of a company doesn't make someone the majority shareholder, I understand that but I meant; for e.g Elon Musk owns 19% of Tesla which is more than anyone else, so would someone have to buy him out to own the company with only 19% or would they have to buy more than that.

And, if a new company is being created by a billionaire who can already invest all his money into the business, is there any need for him to sell shares to the public if he doesn't need to, for e.g does selling public shares boost the market cap of the business in any way? otherwise are billionaires able to own their new businesses as a private company.
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martin7
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(Original post by Marshmello's Dad)
Thank you for this information.

Also, buying 25% of a company doesn't make someone the majority shareholder, I understand that but I meant; for e.g Elon Musk owns 19% of Tesla which is more than anyone else, so would someone have to buy him out to own the company with only 19% or would they have to buy more than that.
To own the company outright, you'd need to own 100% of the shares.

If you own more than 50% you have a controlling interest (in that you can't be outvoted by the other shareholders), but that doesn't mean you can do what you want without regard to the interests of the other shareholders.

And, if a new company is being created by a billionaire who can already invest all his money into the business, is there any need for him to sell shares to the public if he doesn't need to, for e.g does selling public shares boost the market cap of the business in any way? otherwise are billionaires able to own their new businesses as a private company.
No, you don't need to sell shares to the public.

A "market cap" (i.e. market capitalisation) only really makes sense for shares where there's regular trading -- as I understand it, the market cap is simply the last trading price of the shares multiplied by the number of shares issued. If the last time the shares were traded was six months ago, the idea of a "current" market capitalisation figure doesn't really make sense. If the shares have never changed hands, then by definition there can't be a market cap. (And for privately owned companies, I don't think there's any requirement for share transactions to be reported, and certainly not the price at which the transaction took place.)

Anyone can set up and own their own company; you don't have to be a billionaire.

[Don't take what I write as being in any way authoritative; this is simply my understanding of the situation.]
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