How to Safely Sell Stock in Your Business
Selling stocks is an excellent way to boost your business’ revenue. The funds generated from stocks can help your company improve its cash flow, fund expansion into new products, services, and markets, and increase its charity contributions. Despite the benefits, selling stocks can seem scary to small business owners. These steps will help your organization safely sell stocks.
Ensure Your Company’s Structure Suits Selling Stocks
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One of the most common mistakes that businesses make is selling stocks with the wrong business structure. Only corporations can legally sell stocks. If you’re running a sole proprietorship, a general or limited partnership, or a limited liability company (LLC), you must change your business structure and become an S corporation or C corporation before selling stocks.
Changing your business structure can be a complicated process, so enlist the help of tax and legal advisors. These professionals can help you file the required registration documents with your state, create corporate by-laws, designate officers and initial shareholders, and satisfy other requirements. If you’re changing your company name, as LLCs must do to reflect your new status, they can also help you through this process.
Your tax and legal advisors can also help you decide whether to become an S corporation or C corporation. S corporations maintain more control of their business, but are limited to no more than 100 shareholders and just one class of stock. This is usually sufficient for small businesses. C corporations can have an unlimited number of shareholders and sell both common and preferred stock. This flexibility is appealing, but as C corporations are taxed twice — when shareholders receive dividends and at the corporate level — this option can be too expensive for small businesses.
Sell Private or Publicly
Selling shares through an initial public offering (IPO) is the most well-known way of selling stock. While an IPO can expose your business to a wide investor pool, launching one is time-consuming, costly, and complicated. An investment banker or underwriter can help you through this process, including preparing a preliminary prospectus for the Securities & Exchange Commission and investors. Selling shares privately through websites such as SharesPost is a much simpler and more affordable process. Weigh your options, to decide which suits your business best.
Give Stocks to Employees
Gifting stocks to your employees is an excellent way to increase the loyalty of existing employees and attract new quality candidates. When workers have a financial interest in your business, they’re more likely to work harder and better. Gifted stocks can also increase your employees’ incomes without diminishing your company’s bottom line. Offering basic training in how to make money in stocks can help your employees make the most of their investments.
Unlike most fringe benefits, stocks aren’t subject to non-discrimination rules so you can use them to reward your finest employees. Restrictions which demand employees forfeit their stocks if they leave your organization or prevent their transfer within a set time can protect your business. Note that you’re liable for FICA and FUTA taxes on the value of gifted shares.
Selling stocks can be the perfect way to take your small business to the next level. It’s a big step for any organization, but with careful research and care your company can make the leap safely and successfully.