GIVING UP SHARES/STOCKS – FACTS AND MYTHS

Giving up shares or stocks in exchange for services or capital is one of the foundations of investment models such as sweat equity or venture capital. Many companies fear this solution; however, in practice, it does not always mean losing control over the business.

DOES GIVING UP SHARES MEAN LOSING CONTROL OVER THE COMPANY?

Myth: Transferring part of the shares or stocks automatically means that the owner loses control over their company and decision-making in key matters.

Fact: In most cases, giving up shares in the sweat equity or venture capital model does not mean transferring full control over the company. The terms of the agreement and the percentage of transferred shares are crucial. There are various protective mechanisms, such as the right of first refusal, restrictions on making strategic decisions, or the possibility of repurchasing shares after a certain period.

CAN EVERY COMPANY OPERATE ON THE BASIS OF SWEAT EQUITY?

Myth: The sweat equity model can be applied to any company, regardless of its specifics.

Fact: Sweat equity is flexible and can be adapted to various industries, but it also has its limitations. It works best in companies with high growth potential, low startup budgets, and scaling opportunities. Restaurants, IT services, e-commerce, and even cleaning companies can become partners of Sweat Equity. Companies that generate high and stable revenues usually do not use this solution because they can finance development using traditional methods.

DOES AN INVESTOR ALWAYS TAKE FULL CONTROL OF THE COMPANY?

Myth: Collaboration with an investor or Sweat Equity partner always leads to losing control over the business.

Fact: It all depends on the agreement and the percentage of shares being transferred. In most cases, investors do not seek to take over the company but to maximize its value and future profits. At Profitova Group, a minority stake is always transferred, which automatically protects the entrepreneur from losing decision-making power.

WHAT ARE THE BIGGEST RISKS ASSOCIATED WITH GIVING UP SHARES?

Myth: There are no risks associated with giving up shares if the company is growing.

Fact: The biggest risk is the lack of precise arrangements regarding the competencies and responsibilities of the partners. A properly structured agreement eliminates most doubts and risks.

IS GIVING UP SHARES ALWAYS A BAD STRATEGY?

Myth: Transferring shares in exchange for services or capital is always disadvantageous for the business owner.

Fact: Giving up shares is a standard business practice used worldwide. Venture capital, sweat equity, or business angels operate on the same principle. The largest global companies, such as Amazon or Tesla, are mostly not owned by their original owners. When going public, companies often issue stocks, meaning that original owners retain, for example, 10% of shares that ultimately have greater value than the original 100%.

SWEAT EQUITY – A THOUGHTFUL STRATEGY, NOT A RUSHED DECISION

Giving up shares or stocks in exchange for services or capital is not only a form of cooperation but also a business decision that impacts the company's future. Conditions should be carefully analyzed before making a final decision.

HOW DOES IT WORK AT PROFITOVA?

In our model, a minority stake is always transferred – from 0.1% to 40% of shares, depending on the collaboration model, the current position of the enterprise, or its income. 0.1% provides access to years of experience in marketing, sales, and business strategy, and in many cases, the services of traditional marketing firms are significantly more expensive than the value of the transferred shares. The sweat equity model is not a cost – it is an investment in growth, the effects of which translate into long-term increases in the company's value.