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    5 Replies Latest reply on Nov 13, 2008 1:38 PM by Lighthouse24

    Selling a promise for stock options before its public corp

    MicroGrizzly Wayfarer
      My company provides software products and services,
      its not a public company yet and don't have any stocks yet,

      I thought to offer web users the option to "donate" money or better I should say "support" the company
      so the company can do better and offer more free services (for example more free software applications)

      But I'd like to encourage users even more by managing a list that remembers every user and how much
      money gave - and promise these users to get one share of the company for each dollar that was given,
      (users will do that while unknowing how much every share will worth)

      WHAT DO YOU THINK ?
      Please tell me your thoughts and suggestions about this
      Do you think there are any legal problems doing this ?
        • Re: Selling a promise for stock options before its public corp
          DomainDiva Ranger
          A company does not have to be public in order to have shares of stock and stockholders. Our start up is a C corp with shareholders, investor(s) and outstanding shares as well.

          What I see is you, a sole proprietorship, needing money and having no stock, willing to take money with a 'promise' to give something (stock) later that does not exist now, although if you were a corporation would exist now. (stock)

          OR....asking users to pay for any services you provide and then being on the remembered list.

          You need to better define and refine your business skills or in the alternative, get some legal and accounting advice. Business is not JUST about providing services. I don't know about actual legal problems except to say that if the idea sounds like I could loose my money...I probably will.
          • Re: Selling a promise for stock options before its public corp
            Lighthouse24 Ranger

            It's an empty offer, in my view. Suppose you collect $100K, and as promised, give your "contributors" 100,000 shares of stock. If you only issued 100,000 shares, that's fine for them -- but now they own and control the company, not you. If you issued a million shares (retaining 90 percent ownership yourself), every dollar they put in would effectively be worth a dime, and they'd have to depend on you to grow the company ten-fold before they ever recovered their initial "investment."

            Of course, it's absolutely possible to quickly grow a company ten-fold, a hundred-fold, a thousand-fold -- but if you have a business idea that's that good and the management skills to pull it off, there are REAL investors out there. So why do something cheesy like this to raise capital? If your idea and skills are marginal, then the offer is empty at best -- plus because it sort of sounds like an offering of stock, you could open yourself up to some inquiries, investigation, regulation, or oversight that you don't want or need. Personally, I wouldn't do it.

            Welcome to the community and good luck.

              • Re: Selling a promise for stock options before its public corp
                MicroGrizzly Wayfarer
                Thanks for the answers, its a wonderful forum !

                So users will be aware of that, but still may be encouraged to support the company when downloading free software products, and they know that if the company will be a phenomenal success they will have a tiny piece of it,

                My problem with angels at this point is that I don't want to lose any of the "say" and direction nor a large percentage of the company.

                 

                I wonder - as a privately held (c corp)
                1. Can I offer stock options to anyone before the company goes public ?
                2. Other than a contract for the stock options - should there be any other formalities that have to take place ?

                However - I dont think I want to sell stock options just yet (unless I can do that without spending thousands on legal fees) my thoughts are more in the direction of that company that sells areas on the surface of the moon.
                  • Re: Selling a promise for stock options before its public corp
                    Lighthouse24 Ranger

                    Stock options are generally used as a form of compensation or incentive, and are therefore a private contact between the company and the recipient (as opposed to a public offering, which is subject to extensive regulation and oversight). As for the "formalities" of doing this, it depends on the laws of the state in which you're incorporated. Also, stock options can potentially have some unfavorable tax implications for the future shareholder -- so it would be a good idea to seek the advice of both an attorney and an accountant before you finalize your plan (so you don't inadvertently do something that later hurts you or those people who supported your business).

                • Re: Selling a promise for stock options before its public corp
                  jay2maui Wayfarer
                  why not go public? go to my web site at www.howtogopublic.net for full details. good luck.....