Selling Stock Or Other Equity Interests In A Privately Held Company Thomas Pedreira
Q.
I was the CFO of a privately held company that was sold by the owners to a private equity group. During the sale of the company, the private equity group convinced me to invest 5% in the company. After a year or so, I decided to leave the company due to differences with the new owners and other top level management. The private equity group had 90 days to buy my interest back, but did not. I would really like to get out of this investment so I can fully close this chapter in my life. I have not been able to find anyone interested in my share. Would I be breaking any laws or inviting a lawsuit if I were to approach some of the company's competitors about purchasing my investment?
-- Will
A.
The first thing you should do is hire a business and/or corporate lawyer. Equity investment of the nature you are talking about is tricky stuff. State and federal laws pertaining to the issuance and sale of securities is a mine field of potential issues.
In addition, you should pull together and organize all of the documentation you have pertinent to your investment, and take it to the attorney. He or she should be able to zoom in immediately on pertinent provisions and considerations. One question would be whether or not there was proper disclosure to you of all material facts relating to you investment. Another question would be whether or not the issuance of equity to you was properly registered or otherwise exempt from registration. Further, the attorney will want to see if there are any buy-sell agreements or other restrictions on your right to transfer your interest. Presumably in a deal like this, there would be restrictions specifically designed to prevent you from doing what you are suggesting. However, you never know so you should look into it. Again, this is probably a situation where an attorney's representation is going to be well worth the cost, so you should hire someone right away.
