CompuServe Messages

"In exchange, the buyers of the stock certificates (stockholders)…get a piece of the company." What they get is equity ownership of the company. The ownership of stock does not guaranty them a share of the profits. Many public companies don't even pay dividends, no matter how profitable they are, preferring to reinvest earnings in the development of the business. The shareholder generally profits from a rise in the price of the stock – which is often unrelated to the firm's asset value, sales or profits. (Just take a look at America Online as an example: it's recently been valued at more than a hundred times earnings.) "And since when you sell a company off…the profit (if any) from the sale goes to the owners (shareholders) since the owners…own the assets." Not quite. When a publicly held company changes hands, it's the stock of the shareholders that's been purchased or exchanged, not the assets of the underlying company. "Of course, secured creditors…get first dibs at any cash from the sale of assets." In US bankruptcy, the precedence runs: 1) Unemployment compensation and malicious fraud claims, 2) taxes, 3) secured creditors, and finally 4) unsecured creditors. A holder of common stock is in none of those categories. "And while I suppose, at the end of all this, there will still be a certificate of incorporation somewhere saying there's a corporate entity called Commodore International, and that any stockholders would be owners of that entity…since it would have no assets (or debts I presume as a result of the bankruptcy) it would have no more value than a closed bank account." Not necessarily. The corporate shell of the bankrupt often has a value of its own after all the assets have been sold and the debts settled. Tax losses are still reasonably valuable to others in businesses where they can be applied. And a publicly held corporate shell is an excellent way for another company to go public through a reverse merger. There's a whole little industry out there that buys up bankrupt shells and then looks for younger, fast growing companies who want to go public without some of the hassle of a full registration. Most often, though, these are taken up by penny-stock operators who then milk the whole thing dry. In short, at the moment Commodore stock is worthless – but it's still too early to throw the certificates in the trash. They do make nice wallpaper, though, and if the corporate shell is ever resuscitated, there's the opportunity for a profit. But don't plan on paying for your kid's college education with it. Jerry