Is this legal? Floating as a public company question

Let’s say I start my new business, and it’s web-based business, so there’s very little overhead, and it’s got a little bit of traffic, generating a small amount of advertising revenue, but there’s a bit of speculation around that the industry this website is serving is about to boom.

I decide to float my business as a public company, and offer up the shares - all of them - at whatever price.

All shares get sold in the float - I no longer own any of them.

I take all the money raised in the sale of the shares, and begin my new life as an obscure recluse, without having anything whatsoever to do with the old business.

  1. Could I do this?
  2. Is the money raised in the sale of shares in my company mine to do with as I please? Eg, I might re-invest in the business (unlikely as I have sold every last share), or, can I legally use it to pursue personal interests, leaving the majority share-owners to worry about what they’re going to do with their newly floated company that has no money?

Offering or trading in securities is a highly regulated activity, so there’s probably a lot of rules that you might run afoul of. Theoretically, it seems like this would be a legitimate thing to do – the company is a thing that you own, like a boat or a stamp collection. If you sell it, then the new owners get to decide what to do with it, even if you want them to do something different with it, and you get to decide what to do with the money, even if they want you to do something different with it.

HOWEVER, if in advertising the security you don’t make clear that you plan to take the dough and leave – if you give the impression that part of what the new owners are buying is your expertise – then it’s a whole other can of worms, because you led them to believe they were buying A, and you knowingly sold them something vastly different than A. And that is fraud.

–Cliffy

You aren’t selling your interest in the company when you go public. The company is issuing new shares and selling those. The proceeds belong to the company, not you.

Hi friedo, can you please explain this in a bit more detail?

I thought floating a company meant that the owners were selling a percentage of their ownership (ie, “shares”).

There’s a separate issue here, too. If you were running the company, and it was a corporation (I’m assuming it was a corp because you were selling shares), you’d be the company’s sole officer and director. Officer’s and directors owe fiduciary duties to shareholders. http://www.abanet.org/buslaw/newsletter/0003/materials/tip3.pdf

So on the one hand you aren’t a shareholder, the new shareholders could remove you as a director and appoint new directors, who will appoint new officers. But you generally can’t just wander off and leave nobody at the helm without telling anyone.

There are two ways a company can raise new capital. By taking out loans (or selling bonds) or by selling equity (shares of the company.)

Let’s say you put up your own money and start a company, which is owned 100% by you. You file some forms with the gummint and set up a corporation, which issues, say, 1000 shares of stock to you.

Now you decide to make AhuCorp a public company in order to raise capital. The company issues 100,000 new shares and sells them on the public market. The buyers get the shares, and the company gets the money. You still own the original 1000 shares, but now it’s just 1000 out of 101,000 total - a roughly 1% stake in the now-public company.

You are free to quit your job whenever you want, but the proceeds of selling those 100,000 shares don’t belong to you. If the IPO resulted in driving up the share price a lot, you can potentially sell your 1000 shares for a lot of money. But, as an insider, you’ll have to wait several months after the IPO before you can sell.

All the scumbags who made lots of money during the internet boom did it differently.

What you do is hype up the business and then do an IPO with far less shares than are demanded, keeping a vast stack for yourself. Don’t worry, for a fee some financial institution (parasite), will aid you in this endeavour.

As soon as the IPO hits the market sell out all your shares, there will be huge demand and few shares available (remember “far less shares than are demanded”).

Start to travel.

However your plan raises no money in your name, it all belongs to the company.

Thank you for that explanation.