I’m on a kick of watching business investment shows. The investors ask for certain percentages of the business, but what does that actually get them? What’s the difference between a 5% stake and a 25% stake? Do they take a profit share, do they also take on a percentage of the businesses debts? What is equity in layman’s terms?
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> do they also take on a percentage of the businesses debts
No. Corporations are legal entities that are distinct from their owners. The whole point of the corporate structure is that there is a liability shield between the business itself and the owners. Owners are not personally responsible for the liabilities of the business including debt.
>The investors ask for certain percentages of the business, but what does that actually get them?
It’s how much of the business they own. If the corporation has issued 100 shares and those 100 shares account for the totality of the ownership, buying a ‘25% stake’ would be buying 25 of the 100 outstanding shares. You now own 1/4 of the business.
It gets more complicated when you consider things like voting and non-voting shares, preferred shares, etc.
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