Among the many issues to consider when selling ownership in your business is whom you sell to. Sell to an unsophisticated buyer with limited net worth and you’re asking for trouble. He or she might be able to rescind the transaction on legal grounds because there are rules about who qualifies for buying stock or other equity interests, particularly in a closely held business. You should take great caution before you sell ownership to anyone who does not meet the following criteria:
1. Is sufficiently sophisticated and knowledgeable in business affairs, so as to understand risks of the business and the investment. Or is represented by a knowledgeable investment adviser and lawyer.
2. Understands restrictions on the stock.
3. Has sufficient financial capacity (net worth) to absorb any loss in the investment.
Always use a lawyer experienced in securities transactions when you sell stock and equity interests in a business.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
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