After spending a year and half in research, on various aspects of the business we are pursuing, we finally took things to both a lawyer and an accountant, and the meetings left us with more questions than answers. Well, maybe not more, but are now a bit confused about certain aspect of our desires. We plan on approaching another complete set of lawyers and accountants, but I thought I'd see if there was a discussion forum that may be able to supply me with a little more background to prevent from feeling, if not appearing, if not actually BEING, so terribly ignorant about the subject. This appears to be such a forum.
Here's a bit of background:
We've been operating an LLC in the state of Missouri for the past 15 years. It's a tiny winery with barely the economy of a mid range household. A substantial portion of our income has always come from making wines for other wineries; a common practice known as custom winemaking. Though this has been a vehicle that has kept us alive over the years, we feel that it's no longer as desirable of a business model that it was before.
Over the years of operation, we have had the great pleasure of meeting a wide range of people, some of them of means and some of those have offered to invest in our company, a very flattering situation to say the least. Every time the topic has come up, we shot it down for a variety of personal reason, but much of it stemming from our desire to maintain personal possession of the beautiful property that we have acquired.
So at the end of 2012, I attended a short course for entrepreneurs hosted by SMS. It's an awesome course by any standards, and not only provides the information, but also solid networking with other entrepreneurs, some resources, and a huge amount of direct support. The courses are ongoing and I'll be happy to provide a link to it for anyone interested who lives in the Mississippi Delta region. I refrain from posting it right now, for fear of my post being rejected for suspicion of spam.
The course brought out some ideas that I was not only aware of, but have already actually implemented for a different reason. Namely, the formation of more than one company to keep liabilities and assets separated. So we decided to investigate pursuance of the various potential investors via a second business that has the corporate structure. Here is my layout of how things could go:
Missouri has a C Corp structure that is very minimal to setup ($100 plus little more for initial capital). Maximum number of investors is 36; Maximum shares 30,000. Our initial goal is to raise $200,000 so a comfortable 10,000 shares at $20 per share issued.
Now into the questionable area; the entire idea of doing this is to raise funds that we don't have, while still maintaining the control. As far as I can tell, anyone involved so far is not adverse to this concept. The whole reason they are involved is that they know us and they like and trust our ideas; and they feel like the plan is solid enough to yield decent returns. But the scheme we have to maintain control, is to issue ourselves an equal share for every share that is sold. So if we do actually sell 10,000 shares at $20 each, we will end up with the same: 10,000 shares. My understanding of the way this works, that in effect (and I use that term loosely as I'm really not that versed in this) the value of all the shares drops in half, or is now $10 per share. As frightening as this may sound to an outsider, this really does not appear to be a problem with the investors involved. I mainly have a question about whether this is legal way of going about this. The attorney has assured us that it is, via a promoters right law, but the cpa we talked with acted like I was a total idiot. Mind you, the idea of this layout came from the attorney. My original idea was to simply pledge future wages for shares, which is allowed in some states, just not Missouri.
Just so you don't think I'm creating a scam here, and to explain a little more about what's going on (it helps me to write about it: sorry if you feel that it's just taking up the forum space, but perhaps not only could someone else help clarify this, but maybe this could help someone else in similar situation).
Anyway, the new company's purpose is mainly to produce live events at our winery. They hire the bands, market the events, hire employees to conduct the events, and make their money mainly off of the ticket sales. The only tie between the two businesses is the lease that the LLC signs with the production company. It appears to me that a C corporate structure is idea for doing this, as we have no intent on passing along dividends. The moneys all remain withing the corporation, with the exception of wages and bonuses for employees. This mainly keeps taxation to a minimum.
So how does an investor make money. To begin with, they are all patient people and are willing to wait for at least 5 years. Within 5 years time, the projected additional profits made by the winery from the significant increase in traffic flow, will be enough to begin buying back the shares at an agreed price; enough to make the investment worthwhile. So the production company needs to do little more than maintain a balance income/debt ratio, even though on paper it looks like it could make it's own profit easy enough.
So back to the accountant's question: what I understood him to say is that I could not issue/sell shares to a company that has no 'real' value. He was vague as to that term "real value" and I really don't know what he was saying, other than it sounded like he personally would not have interest in putting money towards something like that, therefore it was a non viable idea. If that's the case, his question is moot; I didn't ask him to invest, and my investors are ok with it. But is there some legal aspect that I'm missing that would prevent me from just registering a C Corp and then start selling shares without any 'real value' to the company?
One last question concerning the way the shares were issued: again, the attorney is the one the present the concept of receiving shares as commission, one share for us, for each share sold. My understanding of this would be that the shares issued us would only effect taxes if I sold them at a profit? So simply being issued them would not trigger any tax issues, regardless of their face value at the time. Is that a valid statement.
Sorry to be so long winded. I searched the forum looking for any conversation that may be similar or even have the answer, but to no avail. And while searching, I realized that answering some folks questions would be extremely difficult given the limited amount of information provided. I probably provided some extraneous info here, and probably left out something important too, but am looking forward to any and all contributions to this before I go spend more money on both lawyer and cpa meetings.
Thread: Corporate Shares
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Corporate Shares – 02-20-2014,12:37 PM
- Join Date
- Jun 2014
Good share...I will advice you that pls do not invest in any scheme that you do not have knowledge about. Otherwise you will endup with loss. Gain some knowledge and then invest money.
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- Aug 2015
- Join Date
- Aug 2015