A company boasts they are a private, employee-owned company which gives stock to its employees. What does this mean? How can you have private stock? Isn’t the value of the stock determined by how much one is willing to trade (spend) for it? If it not publically traded, how is the value of the stock determined?
What makes it increase in value?
This seems totally paradoxical. Maybe someone can explain…
Does this kind of arrangement have any advantages for the average worker, or just the big-wigs?
I don’t know much about such things, but surely the company still has a value (and, hopefully, profit) even if the stock isn’t publically traded? It might be a tad more difficult to sell such stock, but if it’s a good company you’d be able to find buyers interested in owning a part of it. Either you agree on a fair price or the trade won’t happen.
I’m sure there’s someone with a degree in economics who can explain this, but I really can’t see any paradox - the trade mechanisms are basically the same, just not public (obviously).
Stock is publicly traded if you can buy or sell it on an established securities market, or through some other system that acts as the equivalent of a securities market.
If your stock isn’t publicly traded, it’s privately held.
The strongest indication of the value of stock on a given date is an actual arm’s length sale occurring near that date. A sale is at arm’s length if there isn’t any family or other relationship between the buyer and seller that might lead to a sale at a price different than fair market value. If you want to claim that your stock has a value of $50per share, you’ll have a hard time supporting that claim if someone recently paid $10 per share.
Sometimes there are no recent sales that can be used to establish the value of stock. Then you have to estimate the value of the entire company and divide by the number of shares outstanding to find the value per share.
Actually, the value of stock is based on the future dividends that will be paid on it. The stock market value is based on different people’s divergent estimates of those dividends.
If the company is issuing stock to employees, they should be getting quarterly dividend payments based on the company’s net profits (in addition to their regular paychecks).
If the company never makes any money, nobody will make any money off the stock. If it’s publically traded, that means the stock price should drop to zero. If it’s not, then the people who got the stock end up with some pretty certificates to decorate their office at the next company they work for. After the current one goes under, you know.
One of Dave Barry’s books has an elaboration of your views of the stock market. When a company needs some money, he says, they just go print some pretty ‘stock certificates’, which they sell to people on Wall Street who hope they’ll be able to sell them for more money to other people on Wall Street … then the company walks away, until they find they need more money. Sometimes, I’m not sure that’s not really how it works, but it’s really supposed to work the way I outlined above.
Private companies give stock away all of the time. Let’s move away from all this gibber-jabber about public markets and come back to the fact that a stock share means that you are a partial owner of the company and will receive dividends on the if they are paid or will recieve payment if the company is sold. A share of stock means that you own X percent of the company.
I received shares in a privately held supermarket chain just days before it was sold as a reward from the executives for being a loyal and valuable employee during transition time. When the transaction time came, I received payment for my shares of the company (I will not say how much but it was 10’s of thousands of dollars). I was an owner in every sense of the word. I received updates from the buyers in the mail quite often and received two adjustment checks of several hundred dollars when the accountants finalized everything.
Actually the value of stock is not necessarily based on the future dividend. The value of stock is based on what people are willing to pay for the stock. Regarding dividends, many companies don’t even pay dividends, because they need to keep all of their money in their business. Dell Computer, for instance, pours all of its money back into making itself a better company.
Numerous companies, including large ones such as Microsoft and Cisco, don’t pay dividends at all. In the mid 1970s, one-third of the companies that went public paid a dividend, By 1999, only 3.7 percent of the new publicly traded companies paid a dividend.
It is true that a dividend-paying history is becoming more important because it does represent some money coming back to the investor as opposed to what we have been subjected to lately.
I’ve held private stock in a few companies. Any corporation issues stock, whether it’s public or not. In one case the whole thing went to poop, but my former fellow officer seems to want to revive it with new projects with which I have nothing to do. If he does and it achieves some value, I guess I’ll reach some settlement with him when I remind him that, although I resigned as an officer and board member, I retain ownership of my shares in the company.
This may sound like a Surprise - you’re screwed(!) job, but it’s not, really. He dragged me through the dirt and if he now resuscitates the endeavor, it’s something I helped build and he destroyed the first time around. Frankly, I’m surprised that he didn’t just form another corporation.
So, my other corporate experiences were a bit more gratifying. For one, my “partner” (other 50% shareholder) and I had agreements in place that allowed the sale of stock, but restricted a sale of stock that gained majority interest to a right of first refusal to the other party. We could, nevertheless, sell some stock.
nitpick/clarification All corporations issue stock. It’s part of the process of setting up a corporation. You can, I guess, have 1 share of stock issued, but there are always shares. Since all corporations have stock, they also all have stockholders, who are (normally) free to sell those shares to anyone they want to at any price they can agree on.
Sometimes, I’m not sure that’s not really how it works, but it’s really supposed to work the way I outlined above.