There’s no question that launching a company requires a significant investment of cash, something that is in short supply for most new business owners. While you might prefer sole ownership of your new business, that might not be realistic from a financial standpoint. Selling company stock can be a viable alternative in this situation. However, you must do so with the understanding that those who purchase shares of your company have a say in how you operate it.
Small business owners also sell company stock for a variety of other reasons. The money earned from the transaction can help to repay debt, expand the business, or eventually transfer business ownership. We discuss some of the most common ways to sell stock below.
Decide Whether You Want a Partial or Complete Sale
One of the most important considerations when selling company stock is determining how much of it you want to sell. If you’re not looking to cede ownership right now, make sure that you don’t sell more than a 49 percent stock in your own company. Selling more than that would make you a minority investor, which means that you may no longer be able to make decisions on behalf of your company. A complete sale transfers ownership of the business to another party.
Four Common Options for Selling Company Stock
Selling shares of company stock to your own employees can help raise revenue while also increasing the level of personal investment your employees feel towards your business. This is especially true when your employees can purchase company stock on a tax-free basis. Other popular options to consider include:
Selling to Large Investors
This group typically has the most money to spend on the transfer of company stock but purchases often come with a long list of demands. These could include everything from replacing the current CEO to a position on the board of directors. The benefit is that it can be easier and quicker than selling stocks to the public. It can become somewhat more complex if it involves the buyers securing venture capital.
Selling to Small Investors
These transactions typically occur between company owners and buyers already known to them. Although these buyers come to the transaction with less to spend, they also don’t have the buying power to demand several changes. It’s all a matter of what is most important to your company when attempting to raise capital.
Selling stock at the public level is a cost-prohibitive move for most companies. In addition to the expense, you also need to abide by auditing, disclosure requirements, and legal requirements set by the Federal Trade Commission (FTC). Even so, this can be the most attractive option when you need to raise a large amount of capital for your business in a short time.
Speak with a Financial Advisor First
Selling company stock can have several tax and legal ramifications for your company. We invite you to learn about the many business owner services we offer and to schedule a consultation with Aura Wealth Management.