We Fools were asked, "When a company issues shares of itself in an IPO, how do the people who have owned the company retain any ownership? Do they quickly buy up a lot of shares?" For the answer, let's back up a mite and examine the IPO process.
When a company "goes public" with an IPO, it usually doesn't sell all of itself. For example, imagine the Bergen Bell Co. (Ticker: RINGG), owned entirely by a woman named Adrienne. Adrienne decides to sell about 10% of the company to the public, via an IPO, to raise money for expansion. Adrienne, who currently owns all of the 90 million shares of the company, will sell 10 million new shares, so there will be a total of 100 million shares after the offering.
Investment bankers help Adrienne determine the value of the company and how much of it she should sell, based on how much money she wants to raise. Let's say they decide to price the offering at $20 per share. This means that Adrienne's company will collect about $200 million when the shares are sold (less the investment bank's fee of roughly 7%). Adrienne will retain ownership of 90% of the firm, or 90 million shares.
This is often how the millionaires and billionaires you see in lists of the world's richest people become millionaires. Like Adrienne, most of their "wealth" is on paper, tied to the number of shares they hold in their companies, multiplied by the current share price.
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