Burying Your Company's Stock

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The reason that you must bury your public company's shares is to reduce your company's float. Your investor relations costs will be lower if your public company has a lower float. [See my article The Proper Use of Shares.] The buried shares are deducted from your float and the balance is called the effective float. You want to get the effective float as close to zero as possible. You don't need to find buyers if your effective float is 0. There are no shareholders who want to sell their shares in your company. It is obvious that this is the best situation. I suggest that if you want your public company to succeed in all aspects, you may want to structure your company's float like this.

Speculators are not investors

American stock buyers, on the whole, are speculators, not investors [http://www.iht.com/articles/529443.htm]. They buy stock with the hope of quickly selling it at a profit. Even the U.S. government realizes that speculating does not lead to economic growth. Taxes for stock buyers willing to hold their shares for at least useful link one year are less than for those who speculate in the Market and quickly sell their stock. The American Government's tax incentive hasn't altered the speculative nature of the U.S. Market, because long term investors are consistent money losers. I've always wondered why long-term investors buy and hold stocks in this manner.

Avoiding Having Your Shares In the Market

I have been involved in the North American stock market for over 20 years and can confirm that professionals make more money by selling shares short (bets that the share price will fall and the company will fail) than they do when buying shares. There are over twenty ways to short sell stocks that professionals employ. The textbooks list only one. (I have written a short selling article that lists twenty-four ways to short shares.) It is the only way to effectively defend against short selling. Make sure that your company shares are not in possession of the Depository Trust Company in New York.

When most people buy shares, they leave them "in street name" rather than taking possession of the share certificates. In street name, they are simply turned over to DTC. Short sellers "borrow", or rely on street stock in some other way, to sell nonexistent stocks into the company market. Public short sellers expect to pay the "borrowed" shares back at the much lower cost when the stock collapses. Professional short sellers never expect to buyback the nonexistent shares and legally avoid U.S. taxes on their profits in doing so. Your company cannot be sold short if the shares can't legally be borrowed.

If you can prevent your shares from being sold on the DTC by making all of your shareholders physically deliver their certificates, then your company has a Cash Market. Few companies bother or understand the dangers they run from short sellers. Brokerage firms and DTC try to make it as difficult as possible to create Cash Markets in any stock.

Burying Insider Shares

The insiders must "bury" their share certificates. All insiders must agree to a Pooling & Vaulting Agreement. All the insider share certificates, by far the largest percentage of stock in your company, are placed in a bank safe deposit box or other repository. At least two designated insiders must be present to open that safe deposit box. These shares cannot be sold, and short sellers are unable to use them, as they're not held by DTC. When you make acquisitions with your shares, or further issued shares, those shares must also be added to your safe deposit box or other repository. This policy prevents your float from increasing. No one can use these shares to short sell your stock. You are guaranteeing what few companies ever achieve, total control of your stock issue.