Founders Profit

(also, promotional profit), profit appropriated by the founders of a capitalist joint-stock company in the form of the difference between the sum obtained from the sale of stock (at the time the company is formed or expanded) and the sum that is actually invested in the company.

Profit of this type is possible because the market value of stock often is significantly higher than the par value, which represents the amount that is invested in the company. The profit is appropriated by the founders of the company when the stock is watered, that is, when stock is issued for an amount that significantly exceeds the amount invested in the company, even when the issued stock is sold at par. The source of the founders’ profit obtained when the market value of the stock is high is the surplus value created at the particular enterprise; when the profit is obtained through watering, the source is the aggregate surplus value that has been created by the working class and that is embodied in the capital that passes from the purchasers of the stocks to the founders. Founders’ profit is one of the ways in which the financial oligarchy is enriched.