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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10645
Experience:  30 years of corporate, litigation and international law
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I WOULD LIKE TO KNOW IF YOU OWN POINTS IN AN INVESTMENT AND

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I WOULD LIKE TO KNOW IF YOU OWN POINTS IN AN INVESTMENT AND THEY SELL MORE THAN 100% AND YOU WERE IN ON THE GROUND FLOOR HOW THEY CAN KEEP LOWERING YOUR VALUE BY DELUSION IF THAT IS THE RIGHT WORD AND KEEP WANTING MORE MONEY TO KEEP YOU ON THE TOP? IT ALL SEEMS WRONG TO ME. ALSO IF YOU ASK FOR AN INVESTOR IN YOUR BUSINESS THIS IS A DIFFERENT CASE WHAT IS A FAIR % FOR YOU TO PAY THEM?

bizlaw :

Hello, I will try to help you. Please remember I just report or interpret the law, so the outcome may not be what you hoped for. Under your agreement do you have the right to make additional investments to maintain your percentage ownership of the business? You have to say more about your business for me to answser that question.

Customer:

We invested in a invention, we were in on the ground floor, he sold more then 100% then said we were I think the word is diluted, we dropped to a second level. Can they keep selling more than 100% of something and keep dropping you down, somehow this dose not seem right?

bizlaw :

I seemed to have lost your response. Your question was about dilution. When you buy into a company you get initially a percentage of the business. If additional shares are sold to others, your percentage interest in the business will go done because of the additional shares being sold. In some companies and situations, an investor has the right to maintain his or her percentage interest in the business by buying additional shares so that even if shares are sold to third parties, they can maintain their percentage interest in the business. This right is called preemptive rights. Here is an example. If 5 people each invest $100 in a business each investor owns 20% of the business. Their shares are worth $100 each. If 5 more people each invest $100 the business now has $1,000 and each investor owns 10%. The original investors went from 20% to 10% but their investment is still $100. It sounds like that is what happened to you and it is normal in a business that continues to raise money. If you wanted to maintain your 20% interest you would have had to invest an additional $100 to have 20% of the business ($200 of the $1,000 in the business). I hope that answers your question. If I have answered your question please rate my answer excellent as that is how I am compensated. If you have more questions let me know. Finally, if the answer was especially helpful you can provide a bonus. If I can be of further assistance or you have other questions in the future you can ask for me and reach me at this site.

bizlaw :

I ended up answering this question in another box due to some type of technical problem. Basically, if you any time additional people invest in a project your percentage interest in the project drops unless you invest more to maintain your percentage interest. For example if 5 people each invest $100 in a project they each have a $100 investment and own 20%. If 5 more people invest and they each invest $100, all investors now own 10%. This means the original investors dropped from 20% to 10% but their investment is still worth $100. In this case no dilution has occurred. If an original investor wanted to maintain 20% they would have to invest an additional $100 so they would have $200 of the $1,000 invested. This is what occurred with you. If I have answered your question please rate my answer excellent as that is how I am compensated. If you have more questions let me know. Finally, if the answer was especially helpful you can provide a bonus. If I can be of further assistance or you have other questions in the future you can ask for me and reach me at this site.

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