Incorporating, issuing stock and evaluating it
No.  Mark-to-market valuation relies on using a competitive market of public traders to determine the share price --- from free-market trading among independent traders who are not also insiders.   Any professional valuation would see through the promotional nature of the share offer. It is pretty obvious that the purchaser of a share could not turn around and sell their share for $10, unless the 'free hosting' that is worth most of the $10 follows it... and that's more of hybrid of stock and bond than pure stock.  It is also pretty obvious that selling a few shares for $10 does not mean one could sell 10,000,000 shares for $10, because of the well known decreasing marginal value effect from economics. While this question seems hypothetical, as a practical matter offering to sell share of unregistered securities in a startup for $10 to the general public,  is likely to run afoul of state or federal securities laws -- irregardless of the honesty of the business or any included promotional offers.   See http://www.sec.gov/info/smallbus/qasbsec.htm for more information about the SEC regulations for raising capital for small businesses.
I was wondering why equity is reflecting ownership of the issuing entity?  That is the definition of equity in this regard. My understanding is that for a stock/equity, its issuing entity is a company/firm that sells the stock/equity, while its receiving entity is an investor that buys the stock/equity Correct. equity reflects ownership of the receiving entity i.e. investor Incorrect. Equity reflects ownership by the receiving entity of the issuing entity. That is, when you buy stock in a company (taking an equity stake in the company) you buy a piece of the company.  It would be rather odd for the company to own a piece of you when you buy their stock. "The formulae #issued shares = #outstanding shares + #treasury shares looks right. However it looks like the Treasury Shares are treated as -ve in accounting books and thus the outstanding shares are more than issued shares to the extent of Treasury shares. Further info at ""Accounting for treasury stock"" on wiki" Thank you for replying. I'm not sure I totally follow though, aren't you totally at mercy of the liquidity in the stock? I guess I'm havinga hard time visualizing the value a human can add as opposed to say vwapping it or something. I can accept that you're right, just having a difficult time picturing it "The answer to your question has to do with the an explanation of ""shares authorized, issued and outstanding."" Companies, in their Articles of Incorporation, specify a maximum number of shares they are authorized to issue. For example purposes let's assume Facebook is authorized to issue 100 shares. Let's pretend they have actually issued 75 shares, but only 50 are outstanding (aka Float, i.e. freely trading stock in the market) and stock options total 25 shares. So if someone owns 1 share, what percentage of Facebook do they own? You might think 1/100, or 1%; you might think 1/75, or 1.3%; or you might think 1/50, or 2%.  2% is the answer, but only on a NON-diluted basis. So today someone who owns 1 share owns 2% of Facebook. Tomorrow Facebook announces they just issued 15 shares to Whatsapp to buy the company.  Now there are 65 shares outstanding and 90 issued. Now someone who owns 1 share of Facebook own only 1/65, or 1.5% (down from 2%)! P.S. ""Valuation"" can be thought of as the price of the stock at the time of the purchase announcement." No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public.  However, the company could issue more shares at the new higher price to raise more capital. "I'll skip the ""authorizing...."" and go right to uses of new shares: Companies need stock as another liquid asset for a variety of purposes, and if not enough stock is available, then may be forced to the open market to acquire, either by exchanging cash or taking on debt to get the cash." "Each company has X shares valued at $Y/share. When deals like ""Dragon's Den"" in Canada and Britain or ""Shark Tank"" in the US are done, this is where the company is issuing shares valued at $z total to the investor so that the company has the funds to do whatever it was that they came to the show to get funding to do, though some deals may be loans or royalties instead of equity in the company. The total value of the shares may include intangible assets of course but part of the point is that the company is doing an ""equity financing"" where the company continues to operate. The shareholders of the company have their stake which may be rewarded when the company is acquired or starts paying dividends but that is a call for the management of the company to make. While there is a cash infusion into the company, usually there is more being done as the Dragon or Shark can also bring contacts and expertise to the company to help it grow. If the investor provides the entrepreneur with introductions or offers suggestions on corporate strategy this is more than just buying shares in the company. If you look at the updates that exist on ""Dragon's Den"" or ""Shark Tank"" at least in North America I've seen, you will see how there are more than a few non-monetary contributions that the Dragon or Shark can provide." You can go to the required company's website and check out their investor section. Here is an example from GE and Apple. "Well, this sub is generally pretty darn good. Among us are investment bankers, private equity analysts, valuation analysts, portfolio managers, traders, brokers, bachelors, masters, and doctorate students, etc. We're helpful, though sometimes snarky, and have an exceedingly low tolerance for bullshit.  I love it here.  And while your logic is sound, we can actually explore private equity directly, as while private and public equity are related, they are different enough to study separately, in my opinion.  Private equity deals with private companies. By definition, these investments are illiquid (they cannot be easily sold like public stocks), and unmarketable (there is no ready market to trade these investments, like stock). They are generally held for longer time periods.  At its earliest stage, private equity is synonymous with ""initial investment"" or ""seed funding."" This includes (if we are maybe slightly liberal with our definition), the initial investment an entrepreneur makes into his business. At this stage, friends and family, angel investors and venture capital are present. At different points of a company lifecycle, different financiers become interested/applicable (mezzanine investors, etc.).  The investment made into a company allocates a certain percentage of the ownership of the company to the investor in exchange for cash (usually). This cash is used to cover expenses and take on capital projects. The goal of these investments is to directly make the company (and its value, and thus the investor's value) grow.   At some points in time, a new investor will show up and either invest directly in the company (same as before) or buy another investor's holding in the company (in which case, cash goes to *that specific investor* and *not* the company).   At every stage of investment leading up to IPO, the deals are negotiated between the parties. The results of a given negotiation determines the value of that company's equity. For example, if I pay you $100 for 50% of your company, the company's implied worth is $200. If two days later, Joe comes and offers to buy 33% of the company for $100, the Company is worth $300. (Special note: these percentages are assumed to be the allocation of equity **after** the deal. In this last case, the ownership of your company would be 33% you, 33% me, and 33% Joe. This illustrates something called *dilution,* which is very important to investors as it effects their eventual potential payoff later down the road, along with some other things).   At this point, do you have any questions?" "First, you mentioned your brother-in-law has ""$100,000 in stock options (fully vested)"". Do you mean his exercise cost would be $100,000, i.e. what he'd need to pay to buy the shares? If so, then what might be the estimated value of the shares acquired? Options having vested doesn't necessarily mean they possess value, merely that they may be exercised. Or did you mean the estimated intrinsic value of those options (estimated value less exercise cost) is $100,000? Speaking from my own experience, I'd like to address just the first part of your question: Have you treated this as you would a serious investment in any other company? That is, have you or your brother-in-law reviewed the company's financial statements for the last few years? Other than hearing from people with a vested interest (quite literally!) to pump up the stock with talk around the office, how do you know the company is: BTW, as an option holder only, your brother-in-law's rights to financial information may be limited. Will the company share these details anyway? Or, if he exercised at least one option to become a bona-fide shareholder, I believe he'd have rights to request the financial statements – but company bylaws vary, and different jurisdictions say different things about what can be restricted. Beyond the financial statements, here are some more things to consider: The worst-case risk you'd need to accept is zero liquidity and complete loss: If there's no eventual buy-out or IPO, the shares may (effectively) be worthless. Even if there is a private market, willing buyers may quickly dry up if company fortunes decline. Contrast this to public stock markets, where there's usually an opportunity to witness deterioration, exit at a loss, and preserve some capital. Of course, with great risk may come great reward. Do your own due diligence and convince yourself through a rigorous analysis — not hopes & dreams — that the investment might be worth the risk." Selling stock means selling a portion of ownership in your company.  Any time you issue stock, you give up some control, unless you're issuing non-voting stock, and even non-voting stock owns a portion of the company. Thus, issuing (voting) shares means either the current shareholders reduce their proportion of owernship, or the company reissues stock it held back from a previous offering (in which case it no longer has that stock available to issue and thus has less ability to raise funds in the future).  From Investopedia, for exmaple: Secondary offerings in which new shares are underwritten and sold dilute the ownership position of stockholders who own shares that were issued in the IPO. Of course, sometimes a secondary offering is more akin to Mark Zuckerberg selling some shares of Facebook to allow him to diversify his holdings - the original owner(s) sell a portion of their holdings off.  That does not dilute the ownership stake of others, but does reduce their share of course. You also give up some rights to dividends etc., even if you issue non-voting stock; of course that is factored into the price presumably (either the actual dividend or the prospect of eventually getting a dividend).  And hopefully more growth leads to more dividends, though that's only true if the company can actually make good use of the incoming funds. That last part is somewhat important.  A company that has a good use for new funds should raise more funds, because it will turn those $100 to $150 or $200 for everyone, including the current owners.  But a company that doesn't have a particular use for more money would be wasting those funds, and probably not earning back that full value for everyone. The impact on stock price of course is also a major factor and not one to discount; even a company issuing non-voting stock has a fiduciary responsibility to act in the interest of those non-voting shareholders, and so should not excessively dilute their value. The point of that question is to test if the user can connect shares and stock price.  However, that being said yeah, you're right. Probably gives off the impression that it's a bit elementary. I'll look into changing it asap. Assuming you are saying that the company issues 20,000 additional shares of its own stock and sells them for $8 each: The money from the sale is not income and not part of earnings.  It is capital and appears on the balance sheet as part of shareholder's equity. With no other transactions, yes, the total of shares outstanding is increased by 20,000 to 100,000. "Check your broker's IPO list. Adding a new stock to a stock exchange is called ""Initial Public Offering"" (IPO), and most brokers have a list of upcoming IPO's in which their clients can participate." In my original question, I  was wondering if there was a mathematical convention to help in deciding on whether an equity offering OR debt offering would be a better choice. I should have clarified better in the question, I used Vs. which may have made it unclear.