Be it through founder investment, angel investors, venture capital or traditional business loans, all businesses at some point must raise capital. But for many businesses, financing options seem limited: they aren't big enough to attract large investors and often struggle to secure business loans.

So what can they do? Just like their larger public cousins, small corporations can sell stock -- not on the open market, but privately. Selling private stock eliminates regulatory barriers and shares risk while providing essential investment for growth.

Instructions.

1 Decide how much investment capital you'd like to raise with the private stock offering. The total offering amount will be limited by the "fair market value" of the company, the company's prospects for future profits and the amount of ownership in the company you're willing to surrender to raise the desired level of investment. For example, if your company's fair market value is $1,000,000, you might decide to offer 25% ownership for an investment of $250,000.

2 Set the selling price for each share of private stock based on the total value of your stock offering, the number of shares in the offering and the amount you think will best help to sell the stock. You may wish to consider the number of investors who'll be needed to buy all of the shares as well --- a low share price may attract many quite small investors, while a higher share price may limit the offering to those with substantial net worth.

3
Choose the form of your private stock sale. "Private placement" (or "Regulation D") offerings are limited to raising less than $1 million, have a limited number of investors and may only consider investors with at least $1 million in net worth --public advertising is not permitted. "Small corporate" offerings may be sold to an unlimited number of investors regardless of their financial assets, and may be offered to the general public with public advertising. Finally, "Limited partnership" offerings are used exclusively for limited partnerships ---corporations cannot choose this option.

4
Hire an attorney who specializes in the sale of securities in your state draft a "Private Placement Memorandum" (PPM), which provides full disclosure about your company and its finances to potential investors, as well as a stock sale agreement, the legally-binding sale contract detailing the company's rights and its obligations to the investors.

5
Have a meeting of the company's board of directors to approve an offering of private stock. (This step applies only to corporations --- partnerships need no board approval.) The board of directors will usually work with company officers and attorneys in drafting the terms of the stock sale. A board vote authorizing the offering should be recorded in the board meeting minutes and retained to verify the legitimacy of the stock offering.

6
File notice of your private stock offering with your state's securities regulation agency. Your attorney can fulfill this requirement and ensure that all state securities laws are being obeyed.

7
Advertise your stock sale publicly (if a "small corporate" offering) or contact potential investors directly (if a "private placement" offering), providing your company's PPM and stock sale agreement as you solicit investment.

8
Direct your attorney to file "Form D" with the U. S. Securities and Exchange Commission after your first stock sale to comply with SEC registration requirements.
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