Need a little help... Got multiple investors interested... How to set up the equity Offering??

[chauben45]

Details: Multiple (approx 12) interested in investing with us to set up a second store. We are a C corp and can issue shares. The biggest question is how investors can exit early, lets say 2 or 3 years... Our shares will be non tradable so as to stay away from SEC reporting and paperwork. So how does an investor exit early... some of the ideas I have received so far are to create wording so that investors can sell back to company with a certain amount of lead time (6 or 12 months) at a valuation that is set by a pre determined formulae. Thank you so much for your reply!

 

[rls]

@chauben45 You can do it that way, or the company can simply make a market for the stock. Someone just keeps a list of who wants to buy at what price and who wants to sell at what price and when they cross (or get close enough) a transaction takes place through the company. This happens all the time with illiquid stock.

 

[chauben45]

@rls Great... thank you for this info... a follow up question: if we maintain this record and the stocks are traded thru us... does this then require us to report to the SEC... This was something that came up in some discussions we were having... the issue being that internally traded stocks are still considered tradable stock which then requires paperwork submitted to the SEC... Thank you for your comment.. =]

 

[rls]

@chauben45 I believe so, but not completely sure. I was never on the corporate side, always as an investor.

 

[shawndavid]

@chauben45 Be sure to include wording that eliminates the possibility of a shotgun clause forcing you out.

Also, give yourself first right of refusal to buy them out at fair value if you wish. Don’t allow the terms to keep them in after that point either (you can only buy so much back).

Make sure you get your own lawyer. If you have one for the business, they won’t have your best interests in mind when people want out.

The best piece of advice on partnering/investors is to be thorough in your exit plan with them. Contracts are for when you go your separate ways. Good paperwork makes good business partners.

 

[chauben45]

@shawndavid - Noted (eliminate the possibility of a shotgun clause)

- Noted (first right of refusal)... your second statement.. Don't allow the terms to keep them in (could you elaborate a bit on this)

- Yes.. we are def getting a lawyer to write this up

- Noted (Exit clauses are the sticky points at which many of our investors are hung on..)

Thank you so much for your comments... =]

 

[shawndavid]

@chauben45 To the second point (first right of refusal), you want language that says when it’s time to buy back, it is you who gets the first crack at it. Failing to write it in like this may open it up to having another partner buy others up instead. (Hope that clears that up)

If you can in your country, stage the partnership using holding companies. This provides an additional layer of protection for assets. (Everyone has a holding company, and those holding companies are what own a group holding company, and that is what owns the actual company)