About Jim D. Ray Expertise Jim Ray is coordinator of a regional venture capital network, serving entrepreneurs and investors seeking funding relationships. Ray is an experienced entrepreneur and is presently involved in the operations of several business concepts, including a national commercial real estate company and a web design firm. Areas of expertise include the overall startup funding process; writing venture capital proposals; and win-win exit strategies for existing private funding relationships.
Expert: Jim D. Ray Date: 2/16/2007 Subject: Private Equity Stocks
Question Dear Jim,
I'm confused about how stocks in a private limited company (i.e private equity stocks in a company not listed on a stock exchange) work...My friend and I are running such a venture and we need to issue stock certificates. How do you work out how much to charge per stock bought? And how much must you pay that shareholder if they choose to sell their shareholding? Thanks!
Answer Wednesday, February 21, 2007
12:00 AM CST
Hello, Daniel:
Excellent question -- let's get right to it:
Private stock certificates are valued based on the total number of shares divided by total value.
If the objective is to divide the company's ownership with stock, I recommend allowing your CPA or bookkeeper to conduct a full valuation. A formal valuation can be a bit complex and requires a solid understanding of asset and liability assignment, appreciation/depreciation, and pro-forma statements to realize the company's future potential.
Like any seller, a stockholder will seek the maximum value of their property at the time of sale, unless otherwise motivated. There are a myriad of ways to structure a stock sale; I recommend speaking with your CPA or corporate financial advisor before a transaction.
Daniel, I hope this information helps point you in the right direction. Should you think of other questions or need further guidance, please feel welcome to write me again at any time.
