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Let's say I have a company and I own 100 % of it.

An investor wants to invest $1000 and gets 10 % of the company, I now own 90 % of the comopany.

To who pertains the $1000 - to me or to the company?

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It depends.

If the investor bought newly-issued shares or treasury shares, the company gets the money.

If the investor bought shares already held by the owner, the owner gets the money.

A 100% owner can decide how to structure the sale. Yet, the investor may only be willing to buy shares if the funds increase the company's working capital.

  • Which one of the scenarios above would be the "normal/standard" procedure in the start-up space? – Numbers Jul 25 '14 at 20:50
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    Depends. First day of public issue, money goes to the company. After that (plus a bit more time for them to finish issuing however many shares they're releasing control of), you're rebuying shares someone else previously purchased, until and unless the company issues more public shares. Note that companies can also repurchase their own shares to take them off the market again. – keshlam Jul 25 '14 at 20:53
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    "First day of public issue, money goes to the company." Absolutely wrong. IPO day is when the initial investors often cash out. Some may be company shares, but it's not 'all' and it's not a given. – JTP - Apologise to Monica Jul 25 '14 at 21:33
  • @JoeTaxpayer, could you explain why there are lockup agreements then around IPOs? sec.gov/answers/lockup.htm being an example from the SEC about this. – JB King Jul 25 '14 at 21:54
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    @JBKing - So those that are given IPO shares can't bail the same day. If you look at any disclosure regarding an IPO, you'll see "10 million shares, 5 million from existing shareholders (the venture capitalists) and the remaining shares from the company." The typical IPO is a mix of raising more capital, which supports keshlam's remark, as well as the VCs who are taking some profit. It's not 100% one or the other. Is that a better clarification? – JTP - Apologise to Monica Jul 25 '14 at 22:50
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There is a legal document called a "Stock Purchase Agreement" and it depends on who is the other party to the buyer in the Agreement. In almost all startups the sale goes through the company, so the company keeps the money. In your example, the company would be worth $10,000 "Post-Money" because the $1k got 10% of the Company.

  • Yes, I have the feeling that it's "always" this talk about pre/post-money so I pressume your answer is close to standard procedure for startups. – Numbers Jul 25 '14 at 21:02
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In my mind you would get all the money.
You owned 100% when that transaction occurred. S/He gets 10% then on everything after.

I usually go to an extreme case to figure out the answer. So...

If S/He bought 100% of the company it wouldn't go to the company it would go to you.

I would be open to criticism on this answer I am answering from common sense not because I really know the answer.

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