united-states, stock, investors, angel-investorsI have a delaware incorporated company (C corp.) of which I own all its shares.
Can I sell these shares to anyone? And any number of people? Can I sell partial shares, e.g., 1.37 shares?
EDIT: It seems I've mistakenly made quite a few assumptions about the OP's position and intentions, as made clear by @eggyal after a very nice chat.
I am assuming @tim_peterson is trying to fund his company; specifically, that he has majority control of his company, and has the intention of funding the company and not himself</em>.</p></li>
I am assuming he is using founder's stock (the premium stuff!) I am assuming his use of the word sell is an indication of his intention to distribute shares, and not necessarily to put money in his pocket. Resume original post: I was hoping someone else would tackle this one, but I do have some pretty relevant experience as I've had to explain this to multiple investors. I'll tackle your second question first. Fractional shares are very common, and are allowed under Delaware's Title 8 Chapter I Subchapter V Section 155. Now for your second question, regarding accredited investors. For a company incorporated out of Delaware, the three rules for an accredited investor are as follows (I pulled these off a share-purchase agreement form I use) earn an individual income of more than $200,000 per year, or a joint income of $300,000, in each of the last two years and expect to reasonably maintain the same level of income. have a net worth exceeding $1 million, either individually or jointly with his or her spouse. be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered. That being said, your question speaks about the ability to sell shares to non-accredited investors. The short answer? - Yes, it's possible. I admit I'm not a lawyer (so never take any of my words or references as factual!), but there are two magical clauses I found referenced in this extremely helpful article - Rule 502 and Rule 506. Without going into technical jargon, it is possible, by Rule 506, to issue shares to non-accredited investors, but it must be understood that this comes with a caveat: [C]ompanies must give non-accredited investors disclosure documents
that are generally the same as those used in registered offerings. Here are a quick fewnotes about taking non-accredited investment: The company cannot use general solicitation or advertising to market the securities; The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchases. Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment; Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. But companies must give non-accredited investors disclosure documents that are generally the same as those used in registered offerings. If a company provides information to accredited investors, it must make this information available to non-accredited investors as well;
The company must be available to answer questions by prospective purchasers; Financial statement requirements are the same as for Rule 505; Purchasers receive "restricted" securities, meaning that the securities cannot be sold for at least a year without registering them. Overall, I side with Joe Wallin, author of the article referenced at startuplawblog: ...[A]ccepting any non-accredited investors will inhibit your
flexibility going forward.
## Answer 510
- posted by: [eggyal](https://stackexchange.com/users/310184/eggyal) on 2014-08-27
- score: 2
1. > Can I sell these shares to anyone?
## This is a complex area of law and you should consult a securities attorney for counsel on your specific circumstances. ##
What follows is a summary of information that I discovered whilst researching this question over the Internet. One of the key resources to which I referred was the SEC's Q&A page, [Small Business and the SEC](http://www.sec.gov/info/smallbus/qasbsec.htm).
1. ### Assumptions ###
This answer assumes that—
* the business is either a [C Corporation](http://en.wikipedia.org/wiki/C_corporation) or an [S Corporation](http://en.wikipedia.org/wiki/C_corporation);
* it is not required to report under the [Securities Exchange Act of 1934](https://www.sec.gov/about/laws/sea34.pdf) (e.g. it has fewer than 500 shareholders or total assets of less than $10 million);
* your shares are not covered by an effective [SEC registration](http://www.sec.gov/answers/regis33.htm);
* you do not trade in shares professionally;
* you wish to offer and sell your shares only within the USA to US residents; and
* valuable consideration will be received in exchange.
2. ### General company law ###
If the company has itself restricted issues or transfers of shares in any way, then those restrictions must be observed. Since in this case you are the sole shareholder, you could first modify any such restrictions as required.
3. ### Federal securities law ###
The [Securities Act of 1933](https://www.sec.gov/about/laws/sa33.pdf) prohibits you from selling or attempting to sell your shares unless an exemption applies.
I strongly urge you to obtain the help of an experienced corporate finance adviser in order to ensure that all marketing and sales fall squarely within such an exemption, as even the smallest oversight could see you facing hefty criminal sanctions. However, by way of outline:
* The *shares themselves* might be exempt if, at the time they were originally issued, the company carried out a significant amount of its business in its state of incorporation (i.e. Delaware) and the issue was offered and sold only to residents of that same state. In order to prevent abuse of this exemption, the shares must not then have been resold within a short time to any person who resides outside that state.
* *You* might be exempt if you don't act as an underwriter. The most usual ways to ensure that are:
* comply with [Rule 144](http://www.sec.gov/investor/pubs/rule144.htm) (hold the shares for at least one year; sell no more than 1% of the shares per quarter; do not solicit orders; and notify the SEC of transactions over a threshold limit); or
* avoid making a "public offer" by conducting instead a "private placement" (potential investors should already be known to you or your advisers and must be either "sophisticated" or able to bear the economic risk—i.e. they are either professional investors or very wealthy).
In both cases, there must be substantive disclosure of the company's business, interests and finances.
Furthermore, since you are the sole shareholder, you may be able to restructure the transaction so that (rather than selling your shares) the company instead issues new shares to the new investors (and then finds some way to return their investment capital to you whilst cancelling your shares). If so, the company may be able to avail itself of further exemptions under Regulations [A](http://www.sec.gov/info/smallbus/qasbsec.htm#rega) or [D](http://www.sec.gov/info/smallbus/qasbsec.htm#regd).
4. ### State securities law ###
In addition to complying with federal laws, you must also comply with the laws of the states in which you make your offer and in which any transaction occurs (normally those of the investor). You may wish to consult the [North American Securities Administrators Association](http://www.nasaa.org/) for more information.
5. ### Implications of sale ###
If your business is currently an S Corporation, then it will automatically become a C Corporation if it ceases to meet the [federal definition](http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/html/USCODE-2011-title26-subtitleA-chap1-subchapS-partI-sec1361.htm): for example by having more than 100 shareholders or any who are not natural persons of US citizenship or residency. Thus whilst you are not thereby *prevented* from selling shares to whomever you want, the implications of doing so may be significant.
2. > Can I sell partial shares, e.g., 1.37 shares?
@jdero has already dealt with this question in [his answer](https://startups.stackexchange.com/a/493): yes, you can.
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