How to Offer Stock in My Company: What You Need to Know
There are many different reasons to sell part or all of a company, and selling shares can greatly improve your cash flow.3 min read
Updated July 24, 2020:
"How to offer stock in my company?" is a question you may ask when you run a business. There are many different reasons to sell part or all of a company, and selling shares can greatly improve your cash flow. This will help you decrease debt and can be used for charitable donations or investments. The cash can then be put back in the company, where it will help fund expansion.
Reasons to Sell
Selling one part of a company can decrease the owner's risk and let them diversify any personal assets they have. There may be several other reasons business owners want to sell their shares. Over time, selling shares can mean preparing for the succession and transfer of ownership to decrease the tax shock to the people who will become the new owners. It's also beneficial to sell shares if the company isn't willing to grow further or has burned out.
Complete Versus Partial Sale
When going through this process, you'll need to know if you want a partial sale or a complete sale. A complete sale is simple and means you won't have any involvement with the business anymore unless a consulting or employment contract continues your relationship. Business sales can be set up in a certain way that offers annuity payments, so it makes sense to have a complete sale if the owner wants to fully move on in a financial way.
A partial sale can increase capital, start ownership transitions, and incentivize employees. Before considering a partial sale, think about the ramifications of how many shares you want to sell. If too much is sold and you end up being a minority investor, you won't be able to influence or control any decisions.
Different Options for Selling
There are different options for selling, including the following:
- Going public
- Selling to big private investors
- Selling to investors who are smaller
- Selling just to employees
It's not an option to go public for most business owners. Getting a public listing for the company will cost the most money and be the most demanding when it comes to auditing, disclosure, and legal requirements. It's the best way to go, however, for raising a good amount of capital or allowing the value of a business to be maximized.
Companies don't need to go public in order to get investment money from institutions. It's faster, cheaper, and easier when shares are sold privately. There are limits to how a company can get investors without filing with the Securities and Exchange Commission, but private sales can have the same advantage of publicly increasing capital without any of the downfalls. Venture capital financing is included in private sales.
For venture funding, a business owner or business decides to sell their shares to venture capital investors while exchanging capital that a business needs to expand or grow. Oftentimes, when large private investors buy large share sales, the company is also required to give one of the spots on the board of directors to the investors.
Sometimes it's both easier and more difficult to sell shares in a private business to smaller private investors instead of to larger, more sophisticated investors. However, it's easier to pick out the investors by hand, and there often are pre-existing relationships. The investors aren't as likely to enforce compromises that larger investors might want, such as a CEO replacement or board representation. However, small investors won't have as much money and it can be a more complicated legal process.
Another option to think about is selling shares of the company to employees. When an employee stock ownership program is established, it increases retention and loyalty while decreasing a company's cash compensation needs, such as bonuses or awards that would be paid in cash otherwise. It also helps you attract and keep employees who are valuable, fosters a sense of ownership within the team, and helps motivation improve. This is because the better the company does as a whole, the higher the stock value will be. These are all options to consider when offering stock in your company.
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