The concept of ownership is deeply woven into the American Dream — e.g. own a home, own public stock, own bonds, own a business — so deeply woven in fact that sometimes “ownership” becomes the goal regardless of the consequences attendant to that “ownership.” Yes, when done properly, with due attention to the risks, rewards and ROI (return on investment), ownership can create equity expansion and increase net worth like few other opportunities in our economy.
However, poorly thought out investments in privately held Companies can lead to “dead money”, where the only “return” is pride of ownership and you cannot get your money out. That is, you get to tell your friends and family that you are an “owner of this Company” but in fact you see no financial benefit to this ownership at all! Even worse, such investments can result in a complete loss of the capital invested. Either way, the money is effectively gone, and you are unable to use it in another productive investment. Bad result.
Some points to consider before investing in a privately held company:
- Will I ever see a return on my investment?
- How will I see that return? (Dividends, interest, appreciation?)
- How likely is it that I will actually see that return?
- Will I ever get my original investment back?
- Can I sell my stock to somebody if I want/need my money (or some of it) back?
- At what price can I sell my stock?
- How long will that take?
- There are many other issues to consider as well.
Adishian Law Group, P.C. assists investors in privately held companies in maximizing the value of their ownership interest and minimizing the risk of capital loss or “dead money.” We assist with the “capital allocation decisions” for both majority and minority shareholder positions, as well as subsequent ongoing management of these investments. If you are contemplating an investment in a privately held company, or you are already a minority investor, we would be happy to talk with you about your options for increasing the value of your shares.
Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.
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