How to purchase stocks from a privately owned company?
Sam K asked:
My friend asked me to purchase $45,000 for 5 percent ownership of a company. The stock price is about $0.15 per share. However, what if the major shareholders then issue more stocks at $0.01 after my purchase, will my ownership of the company diluted? What kind of procedures or technique I can use to avoid that situation?
My friend asked me to purchase $45,000 for 5 percent ownership of a company. The stock price is about $0.15 per share. However, what if the major shareholders then issue more stocks at $0.01 after my purchase, will my ownership of the company diluted? What kind of procedures or technique I can use to avoid that situation?
You can’t.
You need to talk with a lawyer before you invest. You should be able to put together a contract that keeps them from doing this. There are several things you can do. You can, for example, require them to offer to sell you shares in any future offering. You can agree that if they sell shares for a lower price within a given time frame that they have to repurchase your shares at cost.
There are ways around this.
I’d have to agree with the previous post. Check with an attorney. The issued price of $0.01 could be what’s known as Par Vaule and the real value of shares would have to be found by taking the vaule of the entire company and dividing it by the number of shares to get a more accurate view. An accountant might also be of good use.
Yea, you need to talk to a lawyer that specializes in this kind of law. 45K is a lot of $$. Public companies can issue more stock, but not at any price, and that does dilute the share value.