Where can the founder of a company sell his stocks?

Question

Let's assume that we have a tech company that wants to go public. In its IPO, the founder of the company wants to get $10 millions for 10% percent of the company. Those $10 millions will be represented by 1 million share at $10 each.

The 10% is now publicly traded and the price of the shares can go up or down based on the demand. Meanwhile, the other 90% of the company still belongs to the founder and its co workers. Is the 90% of the company converted to shares as well? Does this mean the founder + co workers own $90 million shares?

Now let's say that in 10 years, the company public shares are worth $250 each (so the market cap is $250x1 million shares = $250 million dollars).

What happens if the founder wants to sell 5% of his shares? Is he allowed to sell them on the public market? Doing so, it means that the structure of the public market will now change since the market was capped at $1 million shares and he wants to sell another 500.000 which are not publicly traded on the market.

I don't really get this part of the equation and an answer will be very much appreciated.

In my own head, it would make sense that when the IPO is issued all the company is converted to shares and 100% of the company is traded publicly. The idea is that the company will hold 90% of the stock market and the other 10% is there for anyone to buy. But this is not the case right? I don't get what happens with the other 90% and how do you sell the 90% if you want to?

For example, I know that the founder of Amazon Jeff Bezos holds 11% of the shares in the company. If he decides tomorrow to sell 5% of them, how he would do it? I'm pretty sure those are not public shares. What shares are they then? And how do you sell them?

Answer 1

Crucial fact that you seem to be missing: before the company becomes public (i.e. before the IPO), it already has shares. For example, the company may have had 9 million issued shares before the it went public. In your example, all of these 9 million shares will be owned by the founder and co. When the company goes public in an IPO, it may decide to issue 1 million new shares to raise money. So after the IPO, there will be 10 million shares, of which 10% are owned by people who bought at the IPO, and 90% are still owned by the founder and co (assuming they did not sell any shares that they own).

Is the 90% of the company converted to shares as well?

There is no "conversion to shares" because those shares already existed prior to the IPO. An IPO merely mints new shares.

What happens if the founder wants to sell 5% of his shares? Is he allowed to sell them on the public market?

Yes, of course. Shares are shares. The shares that the founder and co own are indistinguishable from the shares issued at the IPO.

In my own head, it would make sense that when the IPO is issued all the company is converted to shares and 100% of the company is traded publicly. The idea is that the company will hold 90% of the stock market and the other 10% is there for anyone to buy.

There is no "conversion to shares", because they were already shares before the IPO. After the IPO, 100% of the shares are publicly tradable. The company does not "hold 90% of the stock market"; the shareholders hold 100% of the shares, of which 90% are owned by the founder and co, and the remaining 10% are owned by the people who bought shares at the IPO.

For example, I know that the founder of Amazon Jeff Bezos holds 11% of the shares in the company. If he decides tomorrow to sell 5% of them, how he would do it?

Jeff Bezos holds 11% of Amazon's shares, so he is a shareholder of Amazon. Therefore, he could simply sell them just as any Amazon shareholder can sell their shares.

I'm pretty sure those are not public shares. What shares are they then? And how do you sell them?

Every share has an owner. If Jeff Bezos is the owner of a share, he can sell them whenever he wishes. There is no exact concept of "public shares". There is, however, the concept of public float.