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    3. Selling Shares of Your Business to Raise Capital: A Brief Guide»
    Graph tracking value of shares of stock in a company

    Selling Shares of Your Business to Raise Capital: A Brief Guide

    AllBusiness Editors
    FinanceFinancing & CreditGetting StartedStarting a Business

    A proven way for a business to raise capital is to sell shares of stock. While selling stock in a public offering 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.

    What to have in place before selling shares

    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 investor pitch deck will serve as a key factor 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.

    How to sell shares in your company

    To issue private stock, you can make a private placement offering that does not 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 some minimal filings.

    What to keep in mind

    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 use the knowledge and business experience key stockholders bring to the company.

    When selling private stock to start a small company, it is likely that you will know most of your shareholders. Maintaining a good relationship with shareholders is important. They will be more willing to assist you and buy more shares if and when offered if you keep them informed as to the operations and prospects of the business, both good and bad.

    When a business is looking to raise funds by selling securities, a document providing full disclosure is often used. A Private Placement Memorandum (PPM) can be used to disclose such information about the company, including key risk factors. Also known as an Offering Memorandum, this is an important document for small businesses and should be drawn up with the help of an experienced securities attorney.

    RELATED: Fast Small Business Funding: The Best Ways to Get Cash Quickly

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