Postcards from the Bleeding Edge
Monday, February 19, 2007

  converting stock in private corporations

I happen to own a lot of stock in a corporation that is not public. Everytime I turn around, they garner new investment, however. Naturally, although that stock has a (steadily declining through dilution) "value" - the stock is not convertible into dollars, and judging from the way the place is run, and Sarbanes-Oxley - it seems unlikely that they will ever go public. I worked my ass off for that stock, and am more than a little envious of the people whose companies "made it" - the googlers in particular - because I tend to feel that a corporation making it public, or not making it public - is more a matter of luck and intention than actual corporate value.

In a world where stock options are taxable, and the tax on "gifts"preclude people from taking a space trip as a prize, why should employee stock remain forever unconvertible? Shouldn't one of the requirements of incorporation and issuing stock be: to one day, make good on that paper promise - or dissolve? Early corporations had to do this [reference needed], why not now?

Or, if additional investors are found for a corporation, shouldn't the existing and (increasingly unwilling) investors - namely former employee stock holders - get a chance to sell their shares first to the new investor(s) ?

If I could convert my stock - at it's declared face value as of Dec 5th, 2006- I'd be *completely* out of debt and have no worries for a long time. I could have some fun. So I have to admit my motivations are somewhat selfish in this case. BUT:

Wouldn't it make sense to be able to offer that nonconvertible stock - at some point in a private corporation's lifetime - to SOMEONE - at some discount - I'd love to say to the IRS this april 15th - "sorry, I'm low on cash this month, and due to the tax dis-incentives you've provided to my ex-employer for going public I can't sell this stock myself - here - *you* take it. "

Individual current and former employee stockholders in a pre-public corporation are otherwise powerless.

At least the above modifications to the stockholder laws in the US would close the embrace to be purely between the IRS and the corporation and - leave me out of it.
 
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