Defining Private Stock

Private stock is beneficial for those corporations who are not yet ready to go public. Contrary to popular belief, an overwhelming majority of United States corporations are private. Less than one percent of corporations in the US are public.

Releasing private stock involves trading ownership in the company in return for equity or capital. If you’ve ever watched an episode of “Shark Tank,” you have likely seen investors and business owners negotiate a “loan” for a percentage of the company. Terminology such as, “I’ll give you $20,000 for a 10 percent stake in your company” is likely referring to a private stock exchange.

This is noticeably different than stock that a public-traded company issues. If a corporation is public, they must first go through an initial public offering. During this time, anyone can purchase shares. Purchasers will likely invest in common shares, which gives them the right to vote at corporate meetings. Public corporations do not have much control over who purchases common stock, while private companies do have control over who buys their common stock.

Raising Capital V. Giving Up Ownership

If a new corporation is private, owners will face a dilemma. They will need a way to raise capital to fund their new operations. However, doing so will likely require them to contact investors who will be seeking a share in their company. Owners must weigh how much of the company they are willing to give up. It’s a common catch-22, in that founders must give up ownership to grow the company.

If owners do decide to issue private stock, they should be careful about how much they release. They likely won’t want to give up more than 49 percent of the company’s valuation. Otherwise, outside investors would have a majority stake in the company, allowing them to determine the direction in which the company will go. Giving up a majority stake in the company could prove your dreams to be over before they even started.

There are some alternative options available, such as issuing long-term debt in the form of bonds. In this scenario, investors provide you with initial upfront capital. The corporation agrees to pay the entirety of the loan, plus interest, upon expiration of the bond.

However, this too has its downsides. For one, it may not be an attractive option for investors, especially if they believe in your company. Additionally, it could be harmful to a new business to add significant debt to its balance sheet in the early stages. Although it could provide owners with capital, the long-term debt could reduce their chances of acquiring money from other sources, such as a bank.

Who Invests In Private Stock

If they are looking to raise capital, many owners first seek out their friends and professional network. If that proves unsuccessful, owners could perhaps target individuals flush with money, such as:

• Angel investors
• Small business attorneys
• Bankers
• Trusts
• Insurance Companies

Even though the issuing is not public, the Securities and Exchange Commission still maintains strict regulations regarding who can purchase private stock. These regulations are not as tight as they are for those going through an initial public offering, but it’s still vital that companies follow them nonetheless. Otherwise, your new corporation could be hit with stiff fees and penalties.

The SEC requires private investors to be “accredited.” This refers to wealthy individuals who make more than $200,000 per year or have a net worth exceeding $1,000,000. Your corporation will not need to file paperwork with the SEC upon completion of the transaction. But, was the SEC ever to investigate your company or if the company were ever to go public, they’d check to ensure that all private investors meet eligibility requirements. This is not a risk worth taking.

What Paperwork Should Owners Provide During A Private Stock Sale

Upon selling private stock to accredited investors, corporate owners will need to provide and complete relevant paperwork. It’s also critical that the business maintains this paperwork in a safe location. The corporation will also need to create a stock ledger in which they’ll log the transactions. It’s perhaps in a new company’s best interest to store the completed paperwork with the stock ledger.

The corporation will first need to provide its bylaws. Many investors will also request to see similar documents, such as a copy of the Articles of Incorporation and the corporate bylaws. This will demonstrate that the business is operational and compliant. High-quality documents can also lend significant credibility to your company.

Corporations will also likely want to provide a Private Placement Memorandum. This document explicitly explains the terms and conditions the company is offering to prospective investors. The best way to think about this document is as a flyer or brochure. The report will highlight critical aspects the company wishes to share with investors. It could also touch on how much capital the company is looking to raise and the reason for doing so.

Once an investor has agreed to buy into the corporation, owners will need to provide a Subscription Agreement. Essentially, this is the contract that between the company and the investor that completes the sale. The Subscription Agreement must highlight how much capital the investor is providing and the percentage of the company they’re receiving in return.

Lastly, the corporation should require the investor to complete an Accredited Investor Questionnaire Form. This serves as a type of “background check” that allows companies to ensure the investor meets the requirements set forth by the SEC. If an investor is not willing to complete this form, it could raise a red flag to the corporation. The Accredited Investor Questionnaire Form can save companies from significant problems in the long-term.

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If you’re looking to incorporate a business, you should have an idea of the paperwork required to do so. Although paperwork requirements may vary from state to state, the documents listed below are some of the most commonly-required forms. By having an idea of what they’ll need to submit, young entrepreneurs can begin gathering the required information and preparing these forms so that they can incorporate and run their business without complications.

Paperwork Requirements For Starting A Business

If you are incorporating a business, there are many critical documents and paperwork requirements with which you’ll want to be aware. One of the most essential is the Articles of Incorporation or the Articles of Organization. The type of document that you must file will depend on the state in which you’re submitting and the kind of company structure you seek.

The state in which you file will likely require this document to contain information such as who your registered agent is and from where they will be operating. Business owners must also include the name of the company, the name of the members of the company and the intended structure of the company.

You should pay careful attention to the requirements set forth by the state in which you’re filing. States often have different requirements for the fees associated with filing, the preferred method of filing, and the information that is needed within the documents. Be sure to look further into your state’s initial filing requirements so that you are well-prepared before filing.

A perfect example of this is an Initial Report Filing. Annual business reports are necessary for a company to continue conducting business – more on that below. Initial Reports contain the same information as Annual Reports, except business owners file them immediately upon opening their company. However, only a handful of these states require companies to submit Initial Reports. Again, it’s vital that entrepreneurs pay close attention to their state filing requirements.

Paperwork Requirements When Expanding Your Business

If a business wishes to open an office in another state, they must file paperwork in the new state. However, companies will register as a foreign entity as opposed to a domestic entity. To do so, companies will likely be required to file a Foreign Qualification form. One of the most critical parts of these form is the Certificate of Good Standing or the Certificate of Status.

Business owners can obtain these documents from the state in which they registered domestically. These documents inform the new state that the company is in good standing, meaning they have filed paperwork promptly and are up-to-date on all fees. Once obtained from the domestic state, the business can move forward registering in the foreign state.

Paperwork Requirements For Operating Your Business

Depending on where you conduct business, you will likely have to file an Annual Report or Biennial Report with your respective Secretary of State’s office. States use these forms to ensure that businesses are operational. There are often strict deadlines associated with these forms. Failure to file promptly could put your business at risk of steep fines, and even the possibility of dissolution.

In most states, you cannot make changes to your registered agent information when filing your Annual Report. If you wish to make changes to your registered agent information, including the name of your agent or the address at which they operate, you will likely need to file a Change of Registered Agent form. However, this information can vary from state to state. It’s imperative that entrepreneurs meet the requirements set forth by the state in which they conduct business.

Paperwork Requirements To Dissolve Your Business

Many business owners believe that when it is time for them to close their business, they can merely walk away without any consequences. Unfortunately, this is not the case. Even when shutting down a company, business owners are required to file paperwork with the Secretary of State’s office.

There’s a good chance that the state in which you operate will require you to file Articles of Dissolution or a similar type of document. There could also be fees associated with filing this paperwork as well. Additionally, business owners are required to submit paperwork in states in which they’ve registered as a foreign corporation, not just their state of domestic corporation. Failure to do so could again subject your business to fees that you are liable to pay even.

Don’t Miss Any Critical Paperwork

Once you incorporate your business, paperwork will be something with which you must become accustomed. Not only is paperwork necessary to incorporate your business, but you’ll also likely need to file annual reports in the states in which you conduct business. If you wish to begin operations in another state, you’ll have to require paperwork there as well. You’ll also have to file paperwork when you make changes to your registered agent or seek to close your business.

However, when you’re trying to run the day-to-day operations of your business, it could become overwhelming trying to worry about completing paperwork with state governments on time. For that reason, you should consider hiring DoMyLLC, a third-party professional services company.

DoMyLLC has extensive knowledge of the paperwork requirements for starting, operating, and closing a business in all 50 states. No matter which state you conduct business, we are here to help guide you through the entire process. Not only can we help you complete the required forms, but we can also remind you of upcoming deadlines as well. At DoMyLLC, we handle your paperwork needs so that you can dedicate yourself fully to running your business.

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That’s because entrepreneurs tend to dedicate themselves entirely to their new company and their business goals. While this can help a new company succeed, it often comes at the expense of others, such as the business owner’s friends and family. The success of the business is critical, but it should never come at the cost of your family. It’s important for burgeoning business owners to write down their three priorities in life and make sure that business is either second or third, as a constant daily reminder of what’s really important in life.

Entrepreneurs should be sure that they work toward accomplishing their business goals, but not at the sacrifice of their family. If you find that you are struggling to find a work-life balance, you’re not alone. It’s a common problem for many entrepreneurs.

Recent studies show that more than 90 percent of working professionals report working more than 50 hours per week, while more than 50 percent of those surveyed said they work more than 60 hours per week. Fortunately, we’ve provided tips below to help you achieve a work-life balance that allows you to pay attention to your business goals and your family.  

Accept That You’re Not Perfect

Arguably one of the most significant character flaws of entrepreneurs is that they are perfectionists. They want every aspect of their new business to be perfect and will work tirelessly to ensure that it is so. However, this is not a sustainable model for success. In time, it will only serve to distract entrepreneurs from their business goals and loved ones.

This belief is backed by Dr. Marilyn Puder-York, author of “The Office Survival Guide.” She said that when unaddressed, perfectionism can quickly evolve into destructive behavior. However, she also says that she understands why so many young professionals are perfectionists, as they practiced these habits as children where their requirements were much more minimal.

Marilyn Puder-York suggests that instead of striving for perfectionism, young professionals should instead aim for excellence. Having a standard of excellence in your company will still help your new endeavor to be successful. However, admitting that there may be flaws, and accepting to let them go or table them for another time, could afford you more of a work-life balance. In fact, Harvard Business Review recently published an article showing how the most “innovative workplace cultures” absolutely must be a nesting ground for failure. Tolerating failure is imperative in being able to allow yourself and employees to experiment, push boundaries without risk of facing dire consequences. However, with tolerance for failure must come intolerance for incompetence, which is a crucial aspect in the hiring process.

Find Time To Unplug

Another significant problem for young entrepreneurs is the fact that they continuously take their work with them. Thanks to technology such as smartphones and tablets, it’s now easier than ever for people to work at all hours of the day. We’ve spoken with too many entrepreneurs who report answering work emails at 9 or 10 o’clock at night when they would much rather be winding down or spending time with family.

Today’s precedent in the professional world is constant accessibility. Young entrepreneurs should work to overcome this notion, setting the expectation that this will not be the case in their company. The sooner they do so, the easier it will be to maintain in the future. The fact of the matter is, working around the clock is not sustainable for anyone. The entrepreneurs eventually burn out and without a break to process and reassess, there is no way for the business to successful evolve. As entrepreneurs set boundaries and effectively create down time, the culture becomes more appealing for the top talent and communication improves. This way, as your business grows, it’s easy to let your employees know that you do not expect them to be accessible 24/7 and that you want them to enjoy time with their families.

If you feel that this will be a struggle, one of the best ways to begin is by turning your electronics off. As Harvard Medical School professor of psychology Robert Brooks states, there should be times when you enjoy the moment because you’ve powered down your electronics. He also says notifications on our phone, and our propensity to check them continually takes us away from “the moment.”

Try turning your phone off at night and on weekends. If you are going to work on the weekends, limit yourself to a few hours a day that you’ve allocated explicitly toward work. After that, ignore all work-related matters. There are also plenty of built-in features on your smartphone that allow you to filter calls or text messages to ensure that you are only receiving incoming calls from contacts of your choosing. The more you restrict yourself, the more habitual the time spent “unplugged” will feel. Over time, Brooks says that you’ll establish a habit of resilience, which, in turn, could give you greater control over your life and allow you to spend more quality time with your family.  Meaning the time spent off-the-clock with family and/or friends won’t simply increase in quantity, but quality as well, leaving you content, refreshed and more ready than ever to plunge back into the grind.

Maximize Your Work Time

Many young entrepreneurs find themselves pulled away from their families because they spend too much time working. However, they fail to recognize that they are inefficient when they work. Instead of working for eight to ten hours per day at 90 to 100 percent, they instead work for 12 to 14 hours a day at 60 to 70 percent.

Try paying careful attention to your work habits. Are you working as efficiently as you can? If so, what is distracting you from work? Should you delete social media from your phone? Should you consider installing an app on your web browser that prevents you from visiting certain websites during work hours?

Another thing that you should evaluate is your sleep patterns. Scientists recommend we get eight hours of sleep per night. When we fail to do so, our concentration suffers. Instead of burning yourself out working, try the opposite approach of cutting work off and getting to bed at a certain hour. Pay attention to how much more alert you are the next day. Your brain relies heavily on sleep to absorb the day’s events and allow your system to learn. If you omit those crucial hours you are stressing your brain out and prohibiting yourself from learning.

Delegate Tasks

To many entrepreneurs, their new company is their “baby.” They want to have a hand in every decision, and they are very fearful to delegate tasks. However, delegating tasks could help prevent new business owners from becoming overwhelmed. This could allow them to better allocate their time toward achieving their business goals. It could also afford them more time to be with their families.

Delegating tasks does not have to come at the expense of hiring employees, either. For instance, one of the quickest ways entrepreneurs could clear room in their schedule is by hiring a professional third-party company, such as DoMyLLC, to handle many of their administrative needs. For instance, DoMyLLC can assist with filing Annual Reports and other similar paperwork.

DoMyLLC will make sure that you not only file this paperwork correctly but that you submit it promptly as well. Removing tedious paperwork from your docket could allow you to dedicate yourself to your business goals, which would then let you put more time into your work-life balance.

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Why Should You Open a Business Bank Account?

We often hear from owners of single-member LLCs or S-Corps, in which they are the only member. These individuals often express that they don’t feel the need to open a business bank account. They indicate that with online technology and smartphone apps, they can track their business transactions easily. However, we feel as though this is a significant mistake that new business owners tend to make. A business bank account typically provides a:

• Credit Card
• Savings Account
• Checking Account
• Merchant Services Account

Merchant services accounts allow companies to accept credit and debit cards as a form of payment. This is one of the most prominent benefits of opening a business bank account. If you plan on selling goods, this is likely a given. However, those selling services could also gain an advantage from a merchant services account.

For instance, imagine you form an LLC that provides consulting and marketing services. In the past, you may have requested that your clients pay you via PayPal, Google Cash, or wire transfer. With a merchant services account, you provide them with a much more convenient payment method.

A business account could also prove to be beneficial over your personal account because it offers limited personal liability protection. Your personal assets will never be at risk. Additionally, business accounts can help protect your customer’s information. For instance, many merchant services accounts go out of their way to preserve purchase information.

Secondly, a business account is significantly more professional than a personal account. Not only does a business account demonstrate professionalism to customers, but it also does so to employees. For instance, business owners could secure an employee credit card for those in the finance department, allowing them to handle day-to-day transactions. This would not be possible if you were to use your personal account.

Lastly, using a business account could protect your credit. Your company’s credit card may have a line of credit significantly more substantial than your personal credit lines. Plus, if you need to make a large purchase for your company, such as new equipment, you won’t have to tap into your personal credit line. Any late payments will impact the company’s credit, not yours.

What Do You Need to Open a Business Bank Account?

If you would like to open a business account, the first thing you’ll need is an Employer Identification Number. You can obtain this number from the Internal Revenue Service, which issues one of the numbers to each company in the United States. This number is exclusive to your company.

Realistically, you should obtain this number regardless of whether you plan to open a business bank account. The number is necessary to pay taxes and hire employees. However, it’s also required to open a business bank account. The bank officer will ask you to provide this number before processing paperwork. This is the bank’s way of ensuring that your company is compliant. It also links your company’s financials to your tax information.

Once you have secured your EIN, you can call or visit various banks. Banks could also ask you to provide other information, such as your Articles of Incorporation or your corporate bylaws. It would be in your best interest to have these documents on hand when visiting, just in case.

We also recommend that you be upfront with your banker when telling them about your business practices. This will allow your banker to hone in on the best accounts for your company. For instance, we do not believe that companies should manage things such as payroll, taxes, income, and expenses for the same account. Your banker can set up accounts that fit your business needs. Don’t have employees? No need for a payroll account – you get the picture.

What to Look for in an Account?

There are a couple of factors you’ll want to consider when determining which bank is best for your company. First and foremost, you should not limit yourself exclusively to your personal bank. Many entrepreneurs are enamored with their own bank and choose to open a business account there if nothing else other than convenience.

However, they could be missing out on excellent rates or perks when they fail to evaluate all options. Your personal bank could be the perfect starting point, but we also recommend that you assess numerous banks so that you can determine the best fit for your company. Each company’s situation is different, but some of the things you’ll want to consider when opening a checking or savings account include:

• Interest rates
• Introductory offers
• Credit rates
• Early termination fees
• Transaction fees
• Minimum account balance fees

If you plan to open a merchant services account, you’ll need to consider another set of criteria. For instance, you’ll likely want to determine the discount rate, which is the percentage that you’ll pay for each transaction. The discount rate is typically around three percent.

Similarly, business owners should compare the transaction fees, which represents how much they are charged on every transaction. Other criteria include the Address Verification Service fees, monthly minimum fees, and ACH daily batch fees.  

Speak with a Financial Professional

Opening a bank account for your business is a necessary step that owners should take immediately after incorporation. However, the process can be overwhelming, especially since entrepreneurs may not have any experience with business accounts.

The account that you open could have long-lasting implications for your company. We recommend speaking with an accountant or similar financial professional who can provide advice and guidance. This is an investment that many entrepreneurs find well worth making.

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