Operating capital is absolutely essential for your company’s ability to do business on a day-to-day basis. No business can survive without sufficient cash on hand, and a lack of operating capital is one of the most surefire factors likely to contribute to a business’ failure.
Fortunately, there’s a relatively easy way to increase your operating capital in the event that your cash holdings fall short of what your company needs to stay active: selling shares.
The approach to selling shares is going to be different depending on whether your company’s stock is publicly traded or not. If your company is still privately owned but experiencing substantial growth, it may be time to consider an initial public offering (IPO). However, this should be discussed with your business attorney, as the process of registering with the Securities and Exchange Commission (SEC) and disclosing information about your company can be time-consuming and may pose risks along with benefits.
Determining your best options
Many smaller businesses are simply not good candidates for an IPO, as they do not have the profile or the potential to make that process worthwhile. For privately owned companies without an IPO on the horizon, however, it’s still possible to offer stock to investors in an effort to obtain the necessary operating capital. This process is much simpler than going through an IPO, as it merely involves exchanging shares in your company for money. The investor—no matter if it’s a friend, family member, other individual or venture capital firm—puts up the money and, in return, gains a stake in your company in the form of stock shares.
For privately owned companies, it’s important that there be an official record of any stock sale to ensure its full legality. A consultation with a qualified attorney can provide the opportunity to draw up a contract—such as a stock certificate or stock transfer form—that covers the relevant details. The number of shares being sold, and to whom, should absolutely be included in such a document.
If you are considering a stock sale as a means of raising operating capital, it’s well worth speaking with an experienced business attorney before going through with the process. Because each case is unique, and considering that the laws involved can be complex, you’ll benefit from the peace of mind that comes with knowing your sale is being conducted in accordance with the law and with your company’s best interests in mind.
BoltNagi is a well-established and respected business law firm serving clients throughout the U.S. Virgin Islands.