Hello, i was curious if i were to sell bits and pieces of my site if there would be any legal issues. So i own 100% of it, i sell 5% of the site to person A. So any money i make in a month, they get 5% of it. I wouldnt think it would be since its mine but i just want to be 100% sure.
Share Marketting tactics?? There would be no legal problems to do so! Do all the paperworks needed! And i recommened you to be a Pvt Ltd Company and then sell shares as is in the share market ~ExP~
Like any other legal issue, this may depend on where you are located. In the United States, for example, selling a partial ownership interest to an investor is usually a sale of a security and is subject to both state and federal laws regulating the sales of securities. The effect of being treated as a security depends on the specific facts.
Selling part of a site and selling a share of the site are two seperate things. Whatever the legal structure of the organisation behind the site you are able to sell a share of it to an investment. How its best to achieve it will however depend on the legal structure and how distinct you want the site to be from any other activities the organisation may be involved in (I use the term organisation but that could be just you as a private individual/ sole trader). If your already a limited company and the site is the only activity then the easiest thing would be to sell shares in the company but you may want to decide what class of shares they are. If your a sole trader then you will absolutely need to have a formal contract drawn up to say exactly what they will get a share of (ie how is "profit" defined - are you using GAAP standards?) and any additional rights they get - ie if you end up selling 60% to other people, do they get voting rights on how the site is run given they own a majority share. Can they sell their share on to other people? If they can't then how do you propose to value their share when you buy back? Are you forced to buy them back if they want to sell etc etc etc.
Talk to an accountant. Even if it was effectively selling securities, I suspect you could get around it using teh existing regulations by pointing out that this was a limited offering to a qualified investor, underneath the limits.
I think it is likely unless he is selling to someone involved in the business, but even if the interest is a "security" it doesn't necessarily mean much because there are lots of exemptions that a typical sale of a security in a small business falls under. The exemptions don't mean it isn't a security, it just means that there are no registration requirements and possibly no reporting requirements. What's left,then, you may ask. What's left is Rule 10b5, which makes it illegal to sell or offer to sell a security if you misstate any material fact or OMIT to state a material fact related to the investment. Many small businesses are so used to marketing that they engage in the same techniques when selling interests in their business. You may tell a potential customer that your product is the greatest thing since sliced bread, but if you make unsupported claims about how great your business is and how you are going to double sales next year, then when those things don't happen, you are going to have an investor who has a personal claim against you and your assets for the losses he suffered investing in your company.
It just sounded to me like he was more interested in taking on a partner(s), not selling selling a security. Everything you are saying is accurate, just sounds like overkill for the question asked.
@browntwn OP said "sell 5% of the to person A." I said that "selling a partial ownership interest to an investor is usually a sale of a security." You say it "sounded to me like he was more interested in taking on a partner(s)". If person A is a "partner" in the sense that he actively participates in the management of the business, you are right. The problem is, in 35 years of practicing law, when I hear that someone is selling 5% of a business to someone, unless that person is an existing loyal employee being brought into the ownership, it is almost ALWAYS an investment transaction. Business people (and many lawyers) tend to use the term "partner" far too loosely. In 1985, the United States Supreme Court in Landreth Timber Co. v. Landreth, 471 U.S. 681 (1985), reversed a 9th Circuit case which had held that the sale of 100% of the stock of a corporation was not a security. The District Court had held, and the 9th Circuit affirmed, that the sale was not a sale of a security, applying the "sale of business" doctrine. If you read the Supreme Court's opinion, you will see just how comprehensive the definition of a "security" is. I am certainly not going to say, based on the sparse information we have, that in the OP's case it will definitely be a sale of security and subject to the antifraud rules. But for people to pop up here and say emphatically that there are no legal issues, as the two posts before me did, when I would probably take 10:1 odds that it is in fact a security, makes me feel like I should show the yellow flag.