AboutDavid E. Coffman CPA/ABV, CVA Expertise General questions about small business management, planning, and measuring and improving business performance. Specific questions about what a business is worth.
Experience Certified Public Accountant, Accredited in Business Valuation (ABV) and Certified Valuation Analyst (CVA). Over 30 years experience advising, owning and operating small businesses. Specializing in business valuation and innovative consulting services for small businesses since 1997.
Question Hi, I established a computer business in 2003 that specializes in Dental Offices. I want to incorporate and bring in a few personal friends that would act as investors.
My question is
How do I receive cash for my business. I understand that when incorporating, those investors will purchase shares in turn for position within the board or active rolls in the company. But how do I cash out on those shares? I want to start another business of my own overseas.
thank you
Alex
Answer I think the best way would be to incorporate the business first and issue yourself the shares of the company. Then sale your friends some of the shares you issued to yourself. DO NOT issue new shares (from the company) to your friends because then the cash would have to go directly into the corporation. If your existing business needs some of the cash, too you could sell part of the shares from your shares and part from the company.
When you sell your own shares you will have to report the sale on your personal tax return and should have something to substantiate the cost (basis) of the shares you sold, like a business valuation of the company before you incorporated.
I suggest you go to an attorney to get a comprehensive shareholders agreement written. It should stipulate how the stock will be valued if one of your shareholders wants out, in addition to many other things.
