I want to invest in a U.S.-based company with unquoted stocks, but I am a foreigner. How to do this?

Question

Other investors and I might invest in a U.S.-based company (in Texas) that needs funding to build the tools they took 20 years to develop. The thing is, if they get funding and can build the real thing they will start earn money very quick since all tests, drawings etc. are finished and customer in place (an investment of 11 000 USD will very quick give a income of 2800 usd a month.) This is in the oil business and the earnings of a successful tools will give very good earnings.

My questions:

1. What do I as a foreigner have to do to be able to register unquoted company stocks to me? Fill in tax number? or other or is there any special procedure for this? Would be nice to to do this without a lawyer. Unquoted stocks means outside of the commercial stock exchanges.

2. How would the procedure get the company to register company stocks to me, while I transfer funds, without any fraud? Especially when both live in different countries (U.S./Europe.)

Answer 1

The recommendation is not to make the investment.

In general, a company does not have to sell their shares to you or allow you to become an investor, because, as you have stated, it is a private company not quoted on the stock market.

If everyone were trustworthy, you could buy the tools for $11000 -- so that you own the tools -- and sign a lease of the tools to the company whereby they pay you $X/month. The lease should be reviewed by a lawyer before it is signed, and perhaps give the buyer the right to demand back the tools at any time. However, even this arrangement is very risky, because the "company" could simply steal or damage the tools and disappear.

It is not an investment that I would make, because it sounds too good to be true. $2800/mo steady cash flow for $11,000 invested. No, I don't think so.

The following information may also be useful, either to you, or future readers:

1. You can lose all the money you invest in any stock, quoted or unquoted.
2. The probability of losing everything is very high when investments are explained as urgent and involve a big opportunity
3. The probability of losing everything is increased when stocks are unquoted because it is not traded on the stock market and it may be impossible to find a buyer when you want to sell your shares.
4. The probability of overpaying for shares is increased when stocks are unquoted because it is not traded on the stock market and therefore there is no way to observe the prices of the stock as it trades between parties independent of and unaffiliated with the business.
5. If you have money to burn, you could achieve a better outcome with charity than with thieves.

If you still want to make this investment, then you should know that:

1. A company with unquoted shares is not traded on the stock market, so you can not buy the shares from a stock broker using the stock market.
2. There is no requirement that a company sell shares or allow new investors. So it may not be possible to buy the shares that you want in this situation.

3. The offering for sale of shares by companies located in the USA is subject to a wild array of complex laws. This is true in many other countries as well. These laws, called securities laws or regulations, can require certain disclosures, require that investors have a high net worth so that they can afford to lose the money or conduct their own investigations and legal actions, or require that the investors know the company founders personally, and can prohibit or limit resale by the buyer/investor.

4. Promoters who say you can still invest and are ignoring or disobeying the securities laws are being at least negligent, but more likely are dishonest and probably criminal. Even if you trust in the investment, can you trust negligent managers to do a good job executing that investment? What about dishonest managers? What about criminals and thieves?

Answer 2

Life would be nicer had we not needed lawyers. But for some things - you better get a proper legal advice. This is one of these things.

Generally, the United States is a union of 50 different sovereign entities, so you're asking more about Texas, less about the US. So you'd better talk to a Texas lawyer. Usually, stock ownership is only registered by the company itself (and sometimes not even that, look up "street name"), and not reported to the government. You may get a paper stock certificate, but many companies no longer issue those.

Don't forget to talk to a lawyer and a tax adviser in your home country, as well. You'll be dealing with tax authorities there as well.

The difference between "unoted" (never heard of this term before) and "regular" stocks is that the "unoted" are not publicly traded. As such, many things that your broker does (like tax statements, at source withholding, etc) you and your company will have to do on your own. If your company plans on paying dividends, you'll have to have a US tax ID (ITIN or SSN), and the company will have to withhold the US portion of the taxes.

Don't forget to talk to a tax adviser about what happens when you sell the stock. Also, since the company is not publicly traded, consider how will you be able to sell it, if at all.