Private Co. Share Buyback

[SutroSF]

Hi Everyone

This is my first post. I'm hoping someone can guide me to getting information on the following topic:

We are a small private corporation ($18mm in sales) and have a few investors that have some A Round and Common Shares. We want to buy back these shares from some of the investors. They don't receive any dividends and we never hear from them so I would think they would be interested in selling them back to us. We definitely will speak to our Attorney when we start but I wanted to get familiar with it before we ask an Attorney to educate us us on it.

Questions are:

*How do we go about doing this
*How do we figure out the price of the shares (again we are a private co.)
*How long do you think it will take

Any help at all would be greatly appreciated. Thank you!!!

[Freelancier]

Sales may not be a good measure of the company's value. Profits matter. Cash flow can matter.

Anyway, there are a lot of ways to approach this, some of it has to do with psychology: Do they even want to sell? I'm assuming you don't have any kind of share buyback agreement in place or this wouldn't be a question.

Your first step is to figure out who wants to sell. If enough do, tell them you will hire an investment advisory team to appraise your company and figure out a per-share valuation. Ask your accountant for assistance with finding that team. Then add a sweetener on top of that value if you really want to get them to sell out. Expect it'll take 2-3 months, just because no one does this in a hurry.

[turboguy]

I think Freelancer pretty well nailed it. The first step would be to talk to the shareholders and see if they are willing and interested in selling. Since there are only a few that should be easy. Your accountant may be able to suggest someone who does small business valuations. If you want a rough idea there are some online free valuation tools. Some are too simplistic but I have seen a few that used about the same tools and metrics that a pro would use for valuing your business. When it comes down to the real nitty gritty however you want it done professionally. Then see if the shareholders are willing to accept an offer at true value. You may have to pay some of them a premium but of course if they get too unreasonable just leave them in place and make sure there are never dividends and eventually they may agree to sell. Good luck.

[Paul]

A private corp with no liquidity opportunity and no dividends leaves shareholders pretty stuck. They may be very happy to just get back their original investment regardless of a valuation. A valuation is meaningless if there is no market for their shares. You may even get away with discounting the original investments.