Raising Capital for Small Businesses by Selling Stock

A proven way to raise capital is to sell shares of stock. While selling stock to the public is generally not an option for a small business, selling stock in a private placement is a way of procuring

cash from investors while maintaining control over who becomes a shareholder in your company. Prior to selling shares of stock you will need to receive Board approval and possibly shareholder approval. In addition you will need to set a stock price and have the stock sales agreements in final shape.

Of course, to even consider selling shares of stock, you need to have a company that shows signs of potential growth and profitability. Your business plan, financial projections, and marketing plan will serve as key factors in convincing someone to purchase stock in your company. You need to show potential shareholders how their money will be spent and what you foresee as the growth pattern of the business.

To issue private stock, you can make a private placement offering that does not necessarily need to be registered with the Securities & Exchange Commission (SEC). A number of exceptions are in place to allow the small business owner to issue stock without having to go through the lengthy and somewhat difficult process of registration with the SEC. However, the offering still needs to comply with state and federal laws. This will typically require filings with state securities administrators.

While selling shares of stock can provide you with much needed capital, it also means that you will be relinquishing some degree of control. Shareholders will have a say in electing directors of the corporation. They can also review corporate books and records and vote on key corporate decisions. Review the stock sale agreement terms carefully with your attorney and make sure you understand all of the company’s rights and obligations. It is imperative that you understand exactly what the stock offering will include and that it adheres to securities laws. A benefit of relinquishing some control through selling stock is that you may be able to utilize the knowledge and business experience key stockholders may bring to the company.