Shares and equity question

Appa

Hi All,

I have some money to invest and I want to invest in a number of businesses.

1. If I want to buy shares in a number of private companies and the owners allow me to do this how do they register this with companies house in the UK?
2. If I buy shares in a recently set up company, how does the company dictate how many shares it has. I don't want to invest and buy X number of shares for them to just make more shares and de-value my own. How does it work?

As you can see I just want to look initially to invest in private equity, but I don't know much about the field.

Please advise where I can research or the answers for what I seek.

R_P_W

Try googling quickest way to lose my money

Appa

well thanks for the detailed advice!

bowlhead99

Appa wrote: »

Hi All,

I have some money to invest and I want to invest in a number of businesses.

1. If I want to buy shares in a number of private companies and the owners allow me to do this how do they register this with companies house in the UK?

With their annual return. Companies House do not have a live record of the shares on a particular day of the week. The company maintains a register and depending on the Articles of Association (the company's own bylaws) they may or may not issue you with a certificate showing which shares are issued to you. The shareholder register is kept up to date by an officer of the company (secretary or director).

2. If I buy shares in a recently set up company, how does the company dictate how many shares it has. I don't want to invest and buy X number of shares for them to just make more shares and de-value my own. How does it work?

A big enough majority of the shareholders can typically vote to issue more shares. Depending on what has already happened in the company before you get there, the directors might have already been given general authority to allot more shares up to a limit. The mechanics of operation of the share capital is dictated by a company's Articles, requiring a special resolution of the shareholders to change it.

Typically when new investors come in to an existing business a shareholders' agreement is put together setting out any particular rights of the different classes of shareholder (any representation on the board of directors, ability to veto certain decision, drag along or tag along or pre-emption provisions in case the business is sold or the shares change hands, etc etc).

What happens when the company needs 500k for its expansion plans (or debts) and you own 20% but you don't want to be 'diluted' by the company issuing more shares? Do you want to have to contribute another 100k or will you allow someone else to invest in the new shares and devalue your own?

As you can see I just want to look initially to invest in private equity, but I don't know much about the field.

Please advise where I can research or the answers for what I seek.

I would agree, it sounds like you don't. The BVCA (British private equity and Venture Capital Association) have some literature but you need to have some sort of idea about how companies work. You might find it worthwhile to read this http://admin.bvca.co.uk//library/documents/A_Guide_to_Investing_in_Europe_-_UK.DOC
which is written mostly from an investor perspective, or this http://admin.bvca.co.uk//library/documents/Guide_to_Private_Equity.pdf which is more of a guide for businesses looking for private equity investors, to get a flavour.

Presuming you know something about the 'a number of ' people and businesses you're looking to invest in, so why not ask them what they are willing to give up to get your money, and have them answer all your basic questions? Then you can get legal advice to bash out a deal. Ideally you would have some sort of an idea of what you want first, but if you don't know how companies 'work' this might be somewhat difficult and advice will be all the more important and relatively more expensive. You can make up for relative inexperience by giving up more relatively more cash for lawyers and accountants. But investing in a private company or partnership or limited partneship is one of the more risky types of investment that exists.

Have you considered venture capital trusts which gives you more diversified exposure to smallish businesses and good tax breaks, but all managed for you with no direct participation? Even they would be beyond the risk tolerance of the typical retail investor so I suspect you are not going to get much insight here.

Reaper

As you want to invest in a range of private equity firms but don't know much about it why not go for a fund that does the same thing but chooses for you which companies to invest in. Here is one example, there are others:
http://www.fctr.co.uk/fandc-private-equity-trust/

jimjames

Or Graphite Enterprise which is also available via F&C on the link above.

The value of shares in a private company is hard to determine. Buyers will be very limited and as a minority shareholder you have pretty much no rights over what happens to the company so you are likely to be better off sticking with listed VC options if you are inexperienced.