When a company is founded, the founders can issue (distribute) stock (as mentioned, stock is a certificate that indicates ownership). The founders decide how much of the company each of them will own.
For example, assume that three entrepreneurs – Allen, Benny, and John – decide to start a new computer firm, called “A – B Computers”.
Ownership distribution between the founders of “A-B Computers” The initial investment required is $600 (this is only an example; it could be $6,000, or $6 million).
The three entrepreneurs decide that each of them will contribute $200 – one third of the total – and that each will own one third of the company.
They also decide to issue 600 shares.
In other words, each of them will receive one share for every dollar they invest.
Each will therefore receive 200 shares.
Allen owns 200 of the 600 total shares.
Like Benny and John, he owns one third of the company.
If Allen buys Benny’s and John’s shares, he will own all of the company’s stock, and become the company’s sole owner.
In this example, the company’s founders chose to issue 600 shares – one share per dollar invested.
However, nothing prevents them from issuing 1,200 shares, one share per $0.50, or three shares, one share per $200 invested.
The number of shares issued is determined solely according to the founders’ judgment and convenience.
Regardless of how many shares are issued, each of the investors will still own one third of the company.
The number of shares issued is determined solely according to the founders’ judgment and convenience.
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