Quora Answer: How Can I Spend Company Shares as Real Money Other Than a Loan?

The following is my answer to a Quora question: “If I have a company and my equity is a few million dollars, how can I spend these shares as real money other than getting a loan?” 

You have a few options here.  The equity stake cannot be spent unless you sell it or pledge it to a financial institution such as a bank, and loan against it.  Selling any of that stake reduces your stake, which may also put downward pressure on the stock, and actually reduce the value of your remaining holdings if the company is listed.  If not, this would be a private arrangement known as a partial exit. 

Pledging it to the bank as collateral to get a credit line is essentially a loan.  However, unlike a normal loan, the interest on the principal borrowed is much lower.  The issue is the loan to value of the equity pledged.  If that loan to value is much lower, you get a less liquidity in comparison to what you pledged.  If the value of the stock goes up, it means you over-pledged your collateral for less gain.  If the value of the stock has dropped, the bank may require that you top up in a notice of assessment. 

If you sit on the board, or are a major shareholder, and if the financial performance of the company allows it, you can request that they declare a dividend.  In places such as Singapore, there is no capital gains tax on the individual.  That tax is already paid because of the declared income filed.  You get to keep all that money. 

Alternatively, if you have that level of influence on the board, you could propose a stock buyback.  This would give you some liquidity.  If the company is listed, this has the added advantage of raising the value of your stock because a buyback creates scarcity of the stock and props up its price.