When does it make sense for the money paid for equity to go to the corporation?
"BigCo is selling new shares and receives the money from Venturo. If Venturo is offering $250k for 25% of the company, then the valuation that they are agreeing on is a value of $1m for the company after the new investment is made.  If Jack is the sole owner of one million shares before the new investment, then BigCo sells 333,333 shares to Venturo for $250k.  The new total number of shares of BigCo is 1,333,333; Venturo holds 25%, and Jack holds 75%. The amount that Jack originally invested in the company is irrelevant.  At the moment of the sale, the Venturo and Jack agree that Jack's stake is worth $750k.  The value of Jack's stake may have gone up, but he owes no capital gains tax, because he hasn't realized any of his gains yet.  Jack hasn't sold any of his stake.  You might think that he has, because he used to hold 100% and now he holds 75%.  However, the difference is that the company is worth more than was before the sale.  So the value of his stake was unchanged immediately before and after the sale. Jack agrees to this because the company needs this additional capital in order to meet its potential. (See ""Why is stock dilution legal?"") For further explanation and another example of this, see the question ""If a startup receives investment money, does the startup founder/owner actually gain anything?"" Your other scenario, where Venturo purchases existing shares directly from Jack, is not practical in this situation.  If Jack sells his existing shares, you are correct that the company does not gain any additional capital.  An investor would not want to invest in the company this way, because the company is struggling and needs new capital." The check is written to BigCo. Jack is being diluted, corporation issues more shares. There's no gain, no change in Jack's equity value. Jack didn't lose or win anything. BigCo was worth $1M before the additional money, it is worth $1.25M after the additional money, with Jack owning the same $1M, but the cake is now bigger (obviously the numbers are wrong in your example, but you get the point). If Jack owns all of the one million founding shares (which I assume you meant), and wants to transfer 250,000 shares to Venturo, then he is just personally selling shares to Venturo and the corporation gains nothing. If Jack does not own all of the founding shares, and the corporation had retained some, then the corporate shares could be sold to raise cash for the corporation. Usually in situations like this, the corporation will create more shares, diluting existing shareholders, and then sell the new shares on the open market to raise cash. If the check is written as a check to BigCo, it is less clear how Jack can compensate himself for the equity sale. It is as if the equity was owned by the corporation, not by Jack. This is correct.  If the check is written to BigCo, then it is BigCo issuing new shares.  Jack doesn't compensate himself for the equity sale, as he didn't sell anything.  The company traded shares for money which it uses for expansion.  In the long term, the capital gain from expansion may exceed the value of a $200,000 no-interest loan to the company.   If the value of the company before investing $250,000 is $1 million, then the value after investing is $1.25 million.  So $250,000 is 20% of the value of the company.  BigCo should not give the buyer 25% of BigCo but only 20% in that example.  If it does give 25%, the buyer is getting a $312,500 stake for only $250,000.   With the other example, Jack sells 25% of the company for $250,000 from his personal shares.  This doesn't change the assessed value of the company, just Jack's stake.  Jack then loans the company $200,000.  This also doesn't change the assessed value of the company (at least in theory).  It gains $200,000 but has an offsetting debt of $200,000.  In net, that's no change.  Assets and liabilities balance the same.   So if you know that the assessed value of the company is $1 million and that the buyer is paying $250,000 for a 25% stake at that same valuation, then you know that the check is being written to Jack.  If the check is written to BigCo, then one or more of those numbers is incorrect.   The buyer could be getting a 20% stake.  The new value of the company after the investment is $1.25 million.   Or paying $333,333.33.  The new value of the company after the investment is $1,333,333.33.   Or BigCo could only be worth $750,000 before the investment.  The new value of the company after the investment is $1 million.   Or Jack is getting screwed, selling $312,500 in stock (25%) for only $250,000.  Jack's shares drop from being worth $1 million to only $937,500.  The value of the company is $1.25 million.   Or some combination of smaller changes that balances.
Brb, going to gather up some data for you that displays the various drug discoveries, new drugs, etc. by country/companies in those countries.   I’m not saying that the system isn’t fucked, or that drug prices aren’t absurdly high, or that there aren’t corporations out there not trying to give back to the world...but $$$ is will ALWAYS be the foundation of any business. To churn a profit. How do you do that? You develop a good product, sell the good product, and make your money back and then some for doing all the work. Yes, there are some holes that need to be plugged, i.e. generic drugs still being absurdly priced, gouging between insurance companies and the drug companies...but how can you throw shit in the face of ONE pharmaceutical company when it’s an industry-wide problem with so many different variables at play.   You build a pharmaceutical company, raise the billions of necessary funds to run trials (99% of which will never amount to an actual product the company can sell) WITHOUT relying on public offerings (selling stock... = shareholders), come across some more billions (still without selling stock to raise money) to market and produce your drugs from your 1/99 successful clinical trials all costing unfathomable amounts of $$$, and let me know how you’re doin. Shit is expensive. The people who bitch about the broken system offer up no realistic, economically sound means of fixing that system. There’s no such thing as a free lunch. What makes sense morally does not always translate to making sense economically, as fucked up as that is. There are tons of problems in this  world, and I’m not saying I have answers to any of them, but you need to be able to see the opposing view of an argument as well to fix a problem. Because a paying down a liability and thus gaining asset equity is not technically an expense, GnuCash will not include it in any expense reports. However, you can abuse the system a bit to do what you want.  The mortgage payment should be divided into principle, interest, and escrow / tax / insurance accounts. For example: A mortgage payment will then be a split transaction that puts money into these accounts from your bank account: For completeness, the escrow account will periodically be used to pay actual expenses, which just moves the expense from escrow into insurance or tax. This is nice so that expenses for a month aren't inflated due to a tax payment being made: Now, this is all fairly typical and results in all but the principle part of the mortgage payment being included in expense reports. The trick then is to duplicate the principle portion in a way that it makes its way into your expenses. One way to do this is to create a principle expense account and also a fictional equity account that provides the funds to pay it: Every time you record a mortgage payment, add a transfer from this equity account into the Principle Payments expense account. This will mess things up at some level, since you're inventing an expense that does not truly exist, but if you're using GnuCash more to monitor monthly cash flow, it causes the Income/Expense report to finally make sense. Example transaction split: No one pays 35%, due to the loopholes. Effective tax rates (what they ACTUALLY pay) are lower for major corps than most individuals.   &gt; Does it not make more sense to lower the corporate tax rate while reducing loop holes etc... to make the American corporation more competitive.   This makes sense, but people put those loopholes in there to help themselves and they'll fight to keep them. It's such a mess of tax code. Is she entitled to more of the equity because she made more? No.  Equity should be determined by how much each paid.  But she is entitled to more of the equity if she paid more.  And that may be what she is saying.  That she contributed more to the household's finances than you did.   If you always paid the mortgage out of the joint account, you could presumably go back and look at the account to find out how much each of you contributed to it.  That would give you a reasonable split for the remainder of the equity after your initial investment.  If you both put your entire paychecks into the joint account every time, then it will be the same as the ratio of what you each made.  That would also make sense for splitting up whatever remains in that account.   While you're doing that, you may want to ask for more for your original $65,000.  By my calculation, if your mortgage was 3.5%, that $65,000 saved the household more than $12,000 in interest that became equity instead.  So you could reasonably bump your return on the initial investment up to $77,000 while making the concession on the rest of the equity.   This is just a suggestion for a framework for splitting the equity.  If you can agree on a split, it will almost certainly be easier than going to a mediator or court. Shareholder's Equity consists of two main things: The initial capitalization of the company (when the shares were first sold, plus extra share issues) and retained earnings, which is the amount of money the company has made over and above capitalization, which has not been re-distributed back to shareholders. So yes, it is the firm's total equity financing-- the initial capitalization is the equity that was put into the company when it was founded plus subsequent increases in equity due to share issues, and retained earnings is the increase in equity that has occurred since then which has not yet been re-distributed to shareholders (though it belongs to them, as the residual claimants). Both accounts are credited when they increase, because they represent an increase in cash, that is debited, so in order to make credits = debits they must be credits. (It doesn't mean that the company has that much cash on hand, as the cash will likely be re-invested). Shareholder's Equity is neither an asset nor a liability: it is used to purchase assets and to reduce liabilities, and is simply a measure of assets minus liabilities that is necessary to make the accounting equation balance: Since the book value of stocks doesn't change that often (because it represents the price the company sold it for, not the current value on the stock market, and would therefore only change when there were new share issues), almost all changes in total assets or in total liabilities are reflected in Retained Earnings. The most obvious example would be a situation where a Company is growth constrained, but cash flow positive. It may have enough cash flow to service $10 million of debt, but it needs to build a new facility that will cost $20 million. There is the option to raise debt and equity or just raise equity and move quicker to getting that facility up and running.   There are also situations where debt is used to replace equity (i.e. dividend recapitalization or leveraged share redemption). Sometimes invested capital is expected to earn interest, I've seen this be a stipulation in LLC operating agreements and Corporate bylaws. I thought this arrangement looks a little less than fair. BTW I'm a college freshman, though I do the finances for my parents' regulatory compliance and governance consulting company. Anyhow, that's just my two cents. "If a company earns $1 Million in net profit (let's say all cash, which is not entirely realistic), it can do one of three things with it: On the balance sheet - profits that have not been distributed show up as ""retained earnings"".  When dividends are paid, Retained Earnings and cash are reduced. None of the other options change the fact that it is still ""profit"" - they all just affect the balance sheet, not the income statement: Note that when a company issues dividends, it reduces its per-share value since cash is leaving the door with nothing in return.   In Apple's case, since a significant amount of its profit was earned in other countries (where it was not taxed by the US), it would pay a significant amount in US corporate tax by bringing it back to the US by investing it or paying dividends. They are betting that at some point, the US will change the rules to make it more favorable to ""repatriate"" the money and reduce their tax significantly."