Definition: A way to refer to shareholders in a corporation which reinforces the fact that if the company goes out of business (ie, liquidates), they will only get what’s left over (ie, the residue) after every one else is paid the money they are owed.Example: FAIL Corporation’s shareholders were loving life when the company’s stock was flying high and it was paying its owners a nice quarterly dividend. Just a few short years later, the company was left in the dust by competitors with superior new products. FAIL realized that it was doomed, so it chose to close down. It liquidated its $5 million in assets and paid off the nearly $5 million it owed suppliers. FAIL’s shareholders, as residual owners, received just pennies to distribute amongst themselves.
Investeach explains: The word residue means what is left over. What do we call the gunk that’s left over on the shower walls after we’re done showering? Residue. What do we call the stuff that’s left on a car after the morning dew evaporates? Residue.
While it may not seem fair for shareholders to get in the back of the line upon liquidation, this downside risk is offset by the tremendous upside potential shareholders have. If a company thrives, there is literally no limit to how high its stock price can go and how much they can earn!
Riddle me this:
1. What is a rather harsh, but accurate, way to refer to shareholders?
2. What place in line do shareholders take with regard to being paid upon company liquidation?
3. What potential upside makes up for the reality that shareholders are just residual owners?