Let’s say Jane creates a company and owns 100% of it. Jane then decides to give John 25% of the company in exchange for $100,000. Does this $100,000 go into the bank account of the *company* ? Or does it go to Jane, the *individual*, for giving up a portion of her company?
On shows like Shark Tank, the sharks frequently ask the contestants what they plan to do with the shark’s money if they invest, implying that the money will go into the bank account of the *company*. If that is the case, how does Jane, the *individual* who worked hard to create the company, get compensated for the portion of the company she used to own that has been transfered to this new investor?
In: Economics
It depends.
Let’s say Jane owns 100% if the company and there are 100 shares.
Jane could sell 25 shares to an investor, in which case Jane gets the money, and the company recieved nothing. She owns those shares, it’s her stuff she is selling.
But maybeJane’s company is young and Jane doesn’t need the money for herself but rather wants to hire someone for the company, or buy some inventory to sell.
The company could issue shares, let’s say 25 new shares and sell those 25 to an investor.
The money from that sale would go to the company. Jane would no longer own 100% of the company, but rather 80%. The new investor would own 25/125 shares or 20% of the company.
Jane would still have control, but would probably have to share 20% of profits going forward. She’d also have to look out for the interests of the new investor to some degree. And the company could make it’s hire, or buy it’s new inventory.
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