Anyone up on buying and selling stock, or the whole company?

[Tilar]

Maybe not so much on buying and selling stock, but more on some of the laws when it comes to selling a business.

Here's the situation...

I was approached maybe a year ago about investing in a new company geared toward the medical field. They only have one product but it should save individual doctors a little money and hospitals tens of thousands of dollars a year. It sounded good so I bought in. Now mind you, he only offered this stock to friends and family because he didn't want to deal with a lot of people on it until it was off the ground floor.

The product works, has been EPA approved in all 50 states and all the legal hurdles have been jumped so we can sell in each state and so far the people he's contacted in Canada and the UK are interested. The manufacturer has made the last revisions to the product and about to get the final OK to start production.

I was talking to my uncle who lives next door to the guy that started this company (which is how I met him) and apparently he got an offer from someone that wants to buy it out lock stock and barrel. The stock at this point is selling at 3 times what I bought in at.

Now, this guy has said all along it would take 5 times the initial value for him to sell out and apparently he's got a good offer, but he's not telling anyone any figures. In my way of thinking, shouldn't he have a meeting with everybody about selling it? He does have controlling interest of course but I would think he has to let everyone know what the offer is and ask if we want to sell for that, instead I understand he want to go around asking what we would take for our portion. I'm guessing he's wanting to buy everyone back out at a little profit and then sell it all. Since it's technically not a public company (or is it?), would that scenario be considered insider trading?   

[lukedukem]

i think if he owns 51% of it, he can do whatever he wants. not sure though.

[nh_mopar_fan]

He could certainly inform you of what is happening but if he's got controlling interest, it'd just be an FYI since he can vote his shares to sell.

[BananaDan]

I'm not a lawyer, but if it's not listed on a stock exchange, it's not a public company.  Private companies can issue stock (also called warrants), but they don't follow the same rules of a public company.  The books remain closed usually only to partners/executives.  If he owns majority, I'm pretty sure it's entirely his call.  If it were a public company, the board would review situations like this and would vote or decide what to do, but even in a public company a complete sell-out or a merger is usually not up to the stock holders to vote on but rather the board.  The stock holders usually only get to vote on things like electing board members, executive compensation, dividends and such.  Also, you shouldn't need him to sell the company for you to cash out.  Are there any restrictions on you selling just your shares at 3x now? 

My .02 cents, to defend his point, if the product isn't even in production yet and he's being offered 3x, 5x isn't far away if he holds out. 

[stripedelete]

Take the 3x and move on.   Piggies get rich, hogs get slaughtered.

[Tilar]

I'm not a lawyer, but if it's not listed on a stock exchange, it's not a public company.  Private companies can issue stock (also called warrants), but they don't follow the same rules of a public company.  The books remain closed usually only to partners/executives.  If he owns majority, I'm pretty sure it's entirely his call.  If it were a public company, the board would review situations like this and would vote or decide what to do, but even in a public company a complete sell-out or a merger is usually not up to the stock holders to vote on but rather the board.  The stock holders usually only get to vote on things like electing board members, executive compensation, dividends and such.  Also, you shouldn't need him to sell the company for you to cash out.  Are there any restrictions on you selling just your shares at 3x now? 

My .02 cents, to defend his point, if the product isn't even in production yet and he's being offered 3x, 5x isn't far away if he holds out. 

The only restriction is that for 2 years after production starts I have to sell back to the company at whatever current value is or to a current shareholder at whatever price we agree on, but even then he has to approve the sale. I'm assuming he's been offered close to the 5 because at the time he said he wouldn't even consider selling unless it was 5 million or more. There were 1000 shares setup initially with 100 set aside for friends and family. Currently there are still 230? shares still within the company and the rest belong to him and his wife so he definitley has the controlling interest.

[Vainglory, Esq.]

You need to talk to a lawyer who is licensed in your state (what is your state?). As a minority investor, you may not have any choice as to if/when the business is sold. Besides, if you know that the offer is 3x the stock price, then don't you know what the amount of the offer is?

[Tilar]

I didn't say the offer was 3x the original stock price, The 3x is what the stock is currently selling for over what it originally was when I bought in.  To make things easier, I bought in at $1000 a share. The last that was sold was at $3000 a share and $5000 a share is what he said his selling threshhold is.

How much I make off of it isn't an issue since it's already at 3x per share so i'll make money either way... I was wondering if since he hasn't come right out and said how much the offer was, maybe it is at 10x what the original value was and he's wanting to buy mine at 3 or 5 and sell it to the potential buyers at the 10 that may have been offered? Is that considered insider trading and does it apply in this situation since it's not a publicly traded stock? Understand what I'm asking?