Do You Discount Your Shares When Sold Internally?Many companies believe that they have to provide dramatic discounts when selling to employees. Some companies even complete transactions at book value when selling shares internally. This can be a very bad strategy for a number of reasons. We have seen founders build up there businesses and sell to employees at book value and the employees selling externally at a dramatic increase in value. It is not fair that the discount is so far below market value. It is appropriate for internal employees to receive some reduction on share purchases over the market price the company would receive from an external purchaser. However, the reduction should not be so dramatic that the founders and existing owners are not properly rewarded for building the company. Employees who are invited into ownership are approached for their ability to contribute to the profitability of the company. Owners should look at potential shareholders as an investment that will be accretive to the organization. External owners have not contributed to the profitability of the company but are purchasing the company to enhance their own ability to create more profit.
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