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Shares for capital?

Fin24 user Mbasa Mabi contacted us via our Facebook page regarding equity of a private company in exchange for capital investment from the public. He writes:  

I would like to ask a business related question. Is it possible to offer equity (a share) of a private company in exchange for capital investment from the general public?

Here is an example: A group of people put up capital to invest in a private company and have a share of the equity collectively owned related to their investment.

Daryl Ducasse, an investment manager at Merkurius Capital Solutions, responds:

Yes, it is possible.

However, before embarking on this exercise, please be aware that the Companies Act (2008) (Chapter 4) and the Banks Act (Sections 11 & 81), as well as the Financial Services Board, regulate the manner in which these investments are procured – i.e. the offer should not be advertised in any manner so as to be construed as an offer to the public without a prospectus; if it is not an offer to the public, (by way of a private placement), the terms are governed by Section 96 (of Chapter 4) and include such details as the minimum amount of the subscription, the maximum number of subscribers, and the requirements for all information to be made available on the securities being offered by the company.

The nature of the investment will also determine whether the FSB may consider it to be a collective investment scheme, in which case it requires FSB approval.

The best way forward is to get a reputable audit and accounting firm (as you will need to corroborate the financial projections and statements made in your offer), as well as an attorney who has experience in the drafting and language used in such proposals.

Good luck in your venture – remember, investors are the lifeblood of our nation – do whatever you need to do to ensure as little risk on them as possible, and to promote faith and trust in you, your team and your company’s future – their investment will be an indicator of their confidence in you!

 - Fin24

* Share your experience of setting up a business or simply ask a question. Our business panel can put you on the right path.

Disclaimer: Fin24 cannot be held liable for any decisions made based on the advice provided by experts on our business panel.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.


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