how do the profits of shares which are sold in a share market is distributed?

Answer 1

Companies that earn a profit can do one of three things: pay that profit out to shareholders, reinvest it in the business through expansion, debt reduction or share repurchases, or both. When a portion of the profit is paid out to shareholders, the payment is known as a dividend.

Regular cash dividends are those paid out of a company’s profits to the owners of the business (i.e., the shareholders). A company that has preferred stock issued must make the dividend payment on those shares before a single penny can be paid out to the common stockholders. The preferred stock dividend is usually set whereas the common stock dividend is determined at the sole discretion of the Board of Directors

A company should only pay dividends if it is unable to reinvest its cash at a higher rate than the shareholders (owners) of the business would be able to if the money was in their hands. If company ABC is earning 25% on equity with no debt, management should retain all of the earnings because the average investor probably won't find another company or investment that is yielding that kind of return.

Answer 2

When the stocks are sold in the market it is registered in the buyers name and the profit is distributed to the latest holder of the share certificate. Of course there are different stages for registration like the date of sale, date of registration and date of ownership. Date of ownership starts 4 days after registration and if the company pays it's profits before that then the profit goes to the previous owner of the stock. It is only on the fourth day after registration the company gets details of it's new part owner and his wherabouts so it is four days after registration.

Answer 3

1. paid out as dividend
2. retained (results in increase in book value of the share)
3. buy back the shares (reduce the shareholder base)