How do shares in a company work?

Question

When people buy shares in a company, depending on how many they own, say for example there are 100 shareholders, does that mean each shareholder owns 1% each and when they cash in their shares, they get 1% of the current profits?

Answer 1

The short answer is probably no.

Let's assume your example is a publicly traded company.  The shareholders do not have a say on distribution of profits.  Only the board of directors can declare a dividend, which may or may not be from profits (it sounds silly, but a company could declare a dividend even if they didn't make any money - it's called a return of capital and therefore would not be taxed).  

Assuming it's still publicly traded, the price you get when you sell your shares is dependent on how much the buyer is willing to pay for them.  If the company is doing well, and potential investors think prospects look good in the future, you might well get a higher price than if your company is like Citigroup or many of the other financials (they've taken a beating this year due to the freeze-up in the credit markets, e.g., sub-prime loans).

If the company is privately held (not publicly traded), your ability to sell shares are likely to be dependent on the provisions of the company's buy/sell agreement (in an effort to keep the stock within a family or people known to the other shareholders).  This agreement will usually dictate how to determine the selling price of the share(s) you wish to sell.

Likewise, some shares of the stock may have an assigned value that is different than others (e.g., a majority holder who is active in the management of the company) may have superior voting rights than, say, a midlevel manager or a child of an active owner.