Creating and selling equity shares to investors is a form of raising money for growing a business. Business owners who want to sell equity shares to investors can do so through either an initial public offering, IPO, or through a private placement. An initial public offering is when a company sells its equity shares to the public for the first time and becomes listed on an exchange such as the Nasdaq. A private placement is when a company sells its equity shares directly to a group of private investors. Selling equity shares is a viable way of funding your business.
Things You'll Need
- Business plan
- Securities lawyer
- Investment bank
Write a business plan. Your plan should describe in detail how your business operates and the market for your goods or services. Include your company's financial statements for the prior five years.
Consult with an experienced securities attorney and certified public accountant about your desire to sell equity shares. This preliminary consultation, sometimes referred to as an "all-hands" meeting, should take place six to eight weeks before your company decides to officially register with the Securities and Exchange Commission. This brainstorming session is where to plan a timetable for going public or making a private placement offering. If you decide an IPO is right for your business you will want to discuss which investment bank is best suited to serve as your underwriting firm.
Register your company's equity securities with the Securities and Exchange Commission, SEC, and if necessary with the appropriate state agency responsible for administering your state's securities "blue sky" laws. If you intend to sell shares through an IPO you will need to file form S-1 with the SEC as well as prepare a prospectus. You will also need to decide on which exchange to list your securities. If you decide to do a private placement, you will need to file form D online with the SEC.
Market your company's securities. If you decide to sell your shares through a private placement you are prohibited from advertising your securities, in which case you will need to cultivate personal ties with high-net-worth individuals willing to invest in your business. If you decide to sell your shares through an IPO, you and your investment bank will undertake a "road show," in which you will attempt to assess the amount of public interest for your company's securities.
Respond to any SEC requests for amendments to your initial registration. Your company will not be able to sell its securities until you have satisfied the SEC's filing requirements and are granted an acceleration request to declare your registration statement immediately effective. Once your company's registration statement becomes effective you will be able to begin selling your securities.
Agree on the total number of shares to sell and the price at which you intend to offer your shares for sale. In the case of a private placement you will need to work out the equity share sale price with your individual investors.
Sell your equity shares. In the case of an IPO you will want to work with a transfer agent who can manage and record the transfer of ownership of your company shares to investors.