When you own a small business and are thinking of selling a portion of your business to investors, you’ll want to know everything there is before making any kind of a commitment. Established companies and almost all start-up companies think about raising business capital at some time and will turn to the possibility of taking on investors.
There are many reasons to sell a percentage of your business, but generally, businesses sell in order to raise capital to help bridge the business over a period of time until capital comes in or to expand the business and needing the money to do so.
When you sell part of your business to an investor, you are selling an Equity Investment. Equity investors almost always provide a cash payment or capital in exchange for a certain percentage amount of the profits - or losses in that business.
When selling a piece of your business, it’s a good idea to consider retaining a qualified and experienced business and tax law attorney to help answer general questions, tax questions and determine what specific options are available to you. Many businesses may not need huge quantities of money they think they have to have and may realize they can work well with a lesser amount.
One of the first things to consider when selling to investors is to remember you’re selling a portion of your business to someone else. It’s a good rule of thumb not to sell more than 50% of your company to any number of investors. If you sell 8% to seven different investors, that equals 56%. Those seven investors could combine their portions to control or take over your business.
Your attorney will help you decide what percentage amount you can safely sell and determine how much the percentages are worth. In an unwritten rule, investors are usually looking more at getting cash out of a business in a reasonable amount of time than they are in owning a portion of a healthy company.
Remember when you sell part of your business to investors, they will most probably want to have some say and want to advise you as to how the company is run. You’ll need to realize that as your business grows, you may not want to have irritating investors permanently involved. Think twice about giving away or selling small percentages to your friends and relatives or exchanging services such as building a website.
Talk to your attorney regarding options such as exit strategies that can be written into agreements. The average time for an investor to wait for a return is seven years and most are looking for a 10 to 20 times return on their money.
If you considering selling your business in Denver, Colorado, contact Gantenbein Law Firm's experienced business and tax attorney for your best options. Our tax law and business attorney is here to guide you successfully through the process.
Gantenbein Law Firm's Denver lawyers also practices in the following areas of law: Real Estate, Probate, HOA Disputes, Wills, Trusts, Estate Planning, Elder Law, Credit Disputes and Foreclosure Defense. For a consultation of your case, please call 303-618-2122 or visit www.gantenbeinlaw.com.
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