Small Business Investing

Investing in a Small Business

When I buy an equity position in a company, what exactly am I buying?

When you buy equity or stock in a private company, you acquire a percentage of the ownership of the company (both its assets and liabilities), depending on the mutually agreed valuation of the company and the terms of the transaction, in exchange for a percentage of the profit, usually equal to the percent of ownership of the new entity. For example, if the buyers and sellers agree to a valuation, that the price of the company is $500,000, and 50% of the company is sold, the new buyers would control 50% of the company, and would share in 50% of the company’s earnings, in exchange for a cash payment of $250,000. Most private transactions to acquire private companies require considerable cash as an initial payment.


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