: I'm asking because if an owner sells 20% of his company and has to reinvest it into the business then the investor obviously gets the better of the deal by putting up money that would go into making his company better anyway meanwhile the owners have no personal gain really asides future growth and earnings for giving away a slice of their business
Thanks for the replies. Perhaps I wasn't clear enough. I don't mean an already listed company as I know how stocks and the market works. I'm talking of like FB acquiring whatsapp and we learned that Sequoia had initially invested in whatsapp for about 20%. As the founders would they be legally obligated to invest the money from Sequoia into the business or was it initially a cash out for the founders. That is my question.

: You're assuming the owner is selling for that purpose. In this economy, if someone is selling 20% of their company, it's because they need the money to meet payroll and pay bills. If that's the case, the company is in need of a fast infusion of cash. Not a good sign for the company.

: The selling, and buying, of sharres is nothing to do with the company. It is a SECONDARY market.
Let's say you have a company (80%) in which I have a 20% stake.
I sell my shares to another person. He gives me the monetary value and I give him the shares. How does this affect your company? It just has a different shareholder.
Why should I invest my proceeds into the company? I wouldn't have sold if that were the case.
EDIT. It makes no difference if the company is listed or private, a shareholder sells shares and pockets the money. What has it got to do with the company?? If you sold shares and then invested the money back into the company you would get....shares!!

: Why in the world would anyone sell anything if they didn't get the money? Of course he gets the money. If you own 20% of a company the person who wants to buy your share would negotiate a price with you and write you a check for the most part. Other arrangements could be made, pay you over time as they make money from the business, etc. If you own 20% of the business in stock you would sell you shares of stock and get the money from that. Owning stock is investing in a business so if he was a stockholder why would he sell if he was going to reinvest the money in the business.

: You see it in the wolf of Wall Street where Steve Madden starts selling his stock and it's bad... He's trying to get out , when te owner begins to sell his share without a viable reason it looks bad.. It means that the company is heading down and out.. There's the off chance he's trying some scam or maybe hedging which is unlikely but in all reality when a owner sells his stock it scares the others involved I mean day traders **** their pants.. The see it as a loss of faith and so they follow suit and cut their losses