How do I offer shares in a startup?

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How do I offer shares in a startup?

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Kodakmak

posts: 48

Mar 20, 2008 12:06 PM ET Quote Report Abuse

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I am considering offering private shares in my LLC for operating capital.
1. Can anyone share their experience doing this?

2. What benefits do I offer the shareholders to "sweeten the pot" make my shares more desirable?

3. How do I valuate my business if there is no sales-to-date? (Only started in January-sales generally take 6-9 months to close but avg sale is 100k)

4. Are there any legalities in advertising? Can I advertise in the want-ads, cragslist, etc...?

Thanks in advance for the help!

Justin

robertj

posts: 1458

Mar 20, 2008 12:45 PM ET Quote Report Abuse

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Justin,

The sale of securities is regulated by the SEC (on the national level) and by each State. You need to be very careful and not violate the laws and regulations.

In most situations those selling unregistered securities are prohibited from general solicitation (advertising).

From our experience, a good offer is one where the return is commensurate with the perceived risk.

Send me a PM if you want to discuss specifics.

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

Kodakmak

posts: 48

Mar 20, 2008 1:29 PM ET Quote Report Abuse

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Thanks for the reply. Am I right in saying that you can register with the SEC as an exempted offering and does that allow you to advertise?

robertj

posts: 1458

Mar 20, 2008 2:09 PM ET Quote Report Abuse

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All securities must be registered with the SEC before they are sold - UNLESS the situation qualifies for an exemption. There are several possible exemptions. Most of them include a restriction against general solicitation.

-------------------------

Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

forbeshathaway

posts: 11

Mar 21, 2008 11:46 AM ET Quote Report Abuse

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Assuming you are a small company, which is sounds as if you are, you may not be required to registered with the SEC and more than likely are exempt. It will be difficult to value your business, since it is a start up with limited sales. Who are the potential investors? If friends and family, you can sell the stock at a value that is reasonable. Are you selling for working capital? From a legal standpoint, such documentation is not difficult but you will want to update your corporate minute book and then approve and adopt a resolution from a shareholders` meeting.

Alexis

Raisecapital02

posts: 301

Mar 21, 2008 5:43 PM ET Quote Report Abuse

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I would definitely get with a CPA first You could find yourself in trouble by not following the State and Federal corporate laws when selling securities.

Kodakmak

posts: 48

Mar 27, 2008 1:03 PM ET Quote Report Abuse

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This is what my CPA told me off the cuff (he is in the middle of tax season, so did not have alot of time for more details):
You can sell ownership units to an unlimited number of accredited investors [without filing with the SEC]: people with a net worth of over $1 million or make over $300,000 per year (something like that, you can google it)

You can only sell to 35 unaccredited investors before you have to file with the SEC and perhaps states.

Thanks for the advise,

robertj

posts: 1458

Mar 28, 2008 4:16 PM ET Quote Report Abuse

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There are several exemptions within the securities laws & regulations - which Exempt" the company from registering their securities with the SEC prior to sale. One of them is Regulation D section 506 (commonly called Reg D 506) which is what your CPA was describing. However, one must "file" a From D with the SEC. Most States also require the filing of this form If you exceed the 35 non-accredited limit - you cannot use this exemption.

infinique1

posts: 178

Aug 28, 2012 1:31 PM ET Quote Report Abuse

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You have to first value the company, which is hard when there is no revenue.

AnnJose22

posts: 5

Sep 11, 2012 5:14 AM ET Quote Report Abuse

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Thanks for the reply. Am I right in saying that you can register with the SEC as an exempted offering and does that allow you to advertise?

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