Архив меток » stock «

Incorporate nevada – why you should incorporate your business

Incorporate Nevada – Why You Should Incorporate Your Business

One of the main reasons why numerous people choose to incorporate Nevada business is because of the benefits provided in the state law. If you take the time to study the law of the state, you will find out that incorporating in Nevada is certainly very beneficial to business owners. And if you consider how your business will be affected in a good way, you will find out the big difference of an incorporated business from one that isn’t.

There are people who are still trying to find reasons why they should bother incorporating their business and there are also people who don’t fully understand how to go through the process. It is important that you should know the following advantages that an incorporated Nevada business can enjoy:

-  Unlike in other states where you are required to pay tax when you incorporate your business, the state of Nevada frees you from such obligations. Just imagine how much you can save when you don’t have to pay any personal income tax, company income tax, franchise tax and corporate share tax.

- In Nevada, your privacy is priority. This especially advantageous for people such as celebrities and popular personalities and to people who want to avail of the same confidentiality of their profile. The state also provides laws that permit the discretion of public information that the company chooses to keep private.

- Incorporating your business in Nevada is a very affordable and hassle – free process. You and your business can avail all the benefits at a very minimal cost. Just try comparing the figures with the charges that you will have to pay when you incorporate in other states, and you will realize incorporation in Nevada is definitely a good choice. Not even to mention the number of benefits.

- The IRS information sharing agreement which a great number of states compel their business to abide to is an arrangement between stockholders and IRS which requires them to share with the latter information regarding the corporation. However in Nevada, this is not necessary for stockholders. They are not required to document or report lengthy information. Moreover, the people who are in charge of the company don’t even have to be citizens of the U.S.

-The incorporation of your business in Nevada gives automatic security to your asset in an assistance called asset protection planning. Whatever happens to your business, your personal assets will remain unaffected.

Incorporation is a very beneficial step. As you learn more about the subject, it will not be very hard to see how important it is to make your business successful. Now that you have been acquainted with few of the advantages you can get from the Nevada business law, you probably have enough reason to incorporate.

How to not leave money on the table when raising equity

How To Not Leave Money On The Table When Raising Equity

It starts off like a bad joke, but there is truth in the answer: How much equity do you need to give up when you’re seeking to raise capital? As much as it takes.

There is a price at which your transaction will clear the market. A price that you pay in equity dilution and the price investors receive for the risk they are accepting.

When you go to market with a private placement, do the math upfront to make sure i) you’re providing your investors with an appropriate return, and ii) that you’re not giving away too much equity. To do that, there are six basic steps:

1. Determine a base case forecast for the business.
2. Determine the structure and terms (except for the actual warrant position) of the security you are issuing.
3. Determine the expected enterprise value at the end of the investment horizon.
4. Determine the equity value at the end of the investment horizon.
5. Determine the dollar amount required that results in the targeted IRR.
6. Divide the result you get in step 5 above by the result in step 4. That quotient results in the percent of equity you will need to make available for your investors.

Let’s walk through an example with real numbers so you can see how this all comes together. But first, some assumptions to frame the example:

- You are acquiring a business for $5 million, or 4x the business’s EBITDA of $1.25MM;
- You’ve arranged bank financing of $3MM;
- You are able to invest $500 thousand of your own money;
- The financing gap is $1.5MM; and,
- Your investors will require a 30% IRR.

First you need to determine what your base case is for the business over the next five years. What will you be able to grow the EBITDA to over the next five years – the investment horizon? Lets assume for this illustration that you will be able to grow your business to $1.8MM in five years. Or approximately 7.6% compounded annual growth rate. We’ll also assume that at the end of five years that you’ll still have debt outstanding of $1.2MM (you may have borrowed more to grow your business), and cash of $100K.

Second, you’ll need to determine the terms and structure of the security you will be issuing to your investors (yes, you are issuing a security). Again for illustration purposes, we’ll assume that you will be issuing Preferred stock (the ‘why’ is beyond the scope of this article) in the amount of $1.95MM.

If you’ve noticed that the Preferred issuance is $1.95MM, and not $1.5MM, it’s not a typo. The reason you are issuing $1.95MM is because you, the Sponsor of the transaction, will be investing $450K of your $500K investment alongside the investors. The remaining $50K of your investment will go in as common.

This Preferred issuance will have a five-year maturity, will pay an 8% dividend in cash each year, and will have warrants for some percentage of the common equity of the business; again, the question is how much of the equity?

So, lets look at the math:

- Year 5 enterprise value (or terminal value) is equal to EBITDA times your exit multiple. Lets assume that there is no multiple expansion, so that the 4x you paid for the business is the same multiple for the terminal value. The terminal value $1.8MM x 4, or $7.2MM.

- Equity value is enterprise value, less debt, less preferred, plus cash (unrestricted cash). Therefore, equity value is equal to $7.2MM less $1.2MM (debt), less $1.95MM (preferred), plus $100K (cash), or $4.15MM.

- The IRR your investors are targeting is 30%. Since the investors are receiving 8% of their return in cash dividends, 22% of their return needs to come from the increase in equity value. The math then is $1.95MM (the face amount of the Preferred), times 1.22^5 (that’s 1 plus the 22% in IRR required from the equity build up to the power of 5, which is the maturity of the Preferred). Doing this math results in $1.95 x 2.7027, or $5.27MM.

- From the $5.27MM we subtract the face amount of the Preferred (return the initial investment) of $1.95MM and end up with $3.32MM of equity value that the Preferred investors need to receive in order to receive a 30% IRR (including the Preferred dividend payments of 8%).

- Finally, since we already determined that the expected terminal equity value is $4.15MM, then the Preferred Stock Issuance should end up with 80% of the equity in your transaction in the form of warrants – $3.32MM divided by $4.15MM.

- The remaining 20% of the equity goes to the common equity holder.

So what is the math to you, the Sponsor?

Since $450K of your investment went into the transaction as Preferred, you share in the returns of all the Preferred investors. Your share of the 80% of the equity to the Preferred Shareholders is 23.08% ($450/$1950), or $766K.

Next, since you are the sole common equity holder – the $50K of your total $500K investment – the remaining $830K of equity value ($4.15 – $3.32MM) goes to you for an IRR of approximately 75% (($830/50)^(.2)).

In all, you tripled your money for a blended IRR of 26% – (($766+$830)/$500)^(.2).

There you have it. Private equity pricing on the back of an envelop in six easy steps.

Introduction to futures trading


Although commodity futures trading may seem to be difficult to perceive, it gets easier as soon as you learn its fundamentals.  The primary function of futures market is the increased liquidity as well as transfer of risk between traders having different time preferences and risks.  Consequently, trading of futures is a process of eliminating or decreasing risks, which often transpire during price fluctuations in the stock market.

Futures contracts are traded on an exchange in order to buy or sell a specific underlying instrument on a preset price at a specific future date.  These contracts are usually for the purpose of hedging or assumption.  Futures traders can be classified into two groups such as the hedgers and speculators.  Hedgers are mostly interested in the underlying instrument, seeking to hedge out or impede the risk of price changes.  On the other hand, speculators are mostly interested in generating profit through predicting the trends of the market and at the same time buying an instrument on paper in which they do not have practical usage.  Say, commodities can be bought at Tuesday’s price with the speculation of selling them on Friday at a higher price.

Consequently, hedging protects market prices fluctuations through allowing price change risks to be transferred to skilled risk takers.  Say, if a manufacturer protects itself from an increased price in raw materials, it needs to hedge in the futures market.  Thus, online futures trading are made more convenient and uncomplicated for traders since the prices are distributed in the Internet or through other practical sources such as telecommunications network.