Re:Golden Handcuffs
by alecbz on Thursday May 13, 2021 @09:53PM
(#27149752)
Preferred shares were explained to me once this way:
Imagine I give you $1M for 10% of your business. You now own 90% of a business that has $1M in assets. You easily sell the whole business for $900k (giving away $100k to the buyer, basically), give me back my 10% * $900k = $90k, and keep the remaining $810k for yourself.
Preferred shares are a mechanism for preventing you from immediately liquidating my capital. An investment of time can't be liquidated as easily, so preferred shares are generally only for those making liquid investments.
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It seems there are probably other mechanisms for dealing with this problem, but this explanation makes _some_ sense.
Re:Golden Handcuffs
by gnicholas on Friday May 14, 2021 @12:26AM
(#27150682)
It's easier than this — you wouldn't even have to sell the business. You can just dissolve the company and return the assets to the shareholders pro rata.
Imagine I give you $1M for 10% of your business. You now own 90% of a business that has $1M in assets. You easily sell the whole business for $900k (giving away $100k to the buyer, basically), give me back my 10% * $900k = $90k, and keep the remaining $810k for yourself.
Preferred shares are a mechanism for preventing you from immediately liquidating my capital. An investment of time can't be liquidated as easily, so preferred shares are generally only for those making liquid investments.
---
It seems there are probably other mechanisms for dealing with this problem, but this explanation makes _some_ sense.