Millennials grew up with Apple products. We played the Oregon Trail on Apple Macintosh computers at school. And I will never forget trading in my bulky Discman for a brand new iPod.
What company is more successful and more synonymous with being a Millennial than Apple, the “world’s largest information technology company”?
Forty years ago, Steve Jobs and Steve Wozniak created a business to sell the Apple I computer. They established Apple Computer Co. as a partnership, an unincorporated business where the members (partners) agree to share equally in profits and losses. To fund the partnership, Steve Jobs sold his Volkswagen, and Steve Wozniak sold his Hewlett-Packard calculator. Per the terms of their agreement, written by the third partner Ronald Wayne, Jobs and Wozniak each received a 45% interest with the remaining 10% to Wayne. Shortly after formation, unwilling to take on the risk of being personally liable for Apple’s debts, Wayne sold his interest to Jobs and Wozniak.
From members to shareholders
Within months of forming the partnership, it became clear that Apple Computer Co. needed to incorporate. In January 1977, Apple Computer Co. became incorporated as Apple Computer Inc. Incorporation under the laws of California provided several significant benefits. As partners in Apple Computer Co., Jobs and Wozniak had unlimited liability for the company. Incorporation separated and protected their personal assets from Apple’s potential creditors.
Jobs and Wozniak became shareholders, or stockholders, instead of partners. Mike Markkula, a business-savvy entrepreneur, took a 1/3 share after contributing $250,000. As shareholders, they were still entitled to a share of Apple’s earnings and profits but shielded from Apple’s creditors. Apple’s business was doubling every four months, and more infusions of cash seemed necessary in the future. As a corporation, Apple could raise money by selling ownership, or equity, through company stock. As a result, from 1977 to 1980, Apple’s equity owners increased dramatically.
When Apple offered its shares to the public on December 12, 1980, it created approximately 300 millionaires. After the initial public offering (IPO), anyone could become an owner of Apple ($AAPL) by purchasing shares on the stock exchange. The shares were offered at $22 a share. In 2012, in anticipation of the release of the iPhone 5, Apple traded at over $700 a share. Two years ago, Apple had a one-for-seven stock split, essentially dividing the stock price by 7 and making more shares available to the public.
What’s the value in being a shareholder?
Dividends! Shareholders are entitled to dividends, a share of the corporation’s earnings and profits. As an owner, shareholders are subject to the ups and downs of business. Some years the corporation may not be profitable. For example, in 2002, Apple was not profitable and traded as low as $7 per share.
Growth! The main reason people invest is the potential for growth (capital appreciation). Many investors have an expectation that the value of their shares will increase over time. Be warned, just like a stock can go up, it can also go down.
The Stock Market is driven by market sentiment, or emotion, just as much as company performance. As a result, fluctuations in stock price, up or down, are not necessarily reflective of a company’s performance. However, many stock price movements are the result of how the market reacts to company news that may affect its bottom line. Occasionally, as much as investors believe their investment will go up, there are cases where a company loses everything and goes bankrupt. In which case, you’d lose the money you invested in the company. Therefore, it’s important to invest in companies that you know and understand instead of your neighbor’s hot stock pick. Need help with picking your first stock? Look here.