Hopefully you have read our prior blog titled “Issues Minority Interest Business Owners Commonly Face,” for a discussion of difficulties minority owners face. This blog will focus on things a minority owner can do to protect themselves.
Laws governing corporations and limited liability companies provide business owners nearly unlimited discretion in determining how to run the company and what the rights of owners should be. Thus, it is essential for an owner of a minority interest to negotiate as many protections as possible from the beginning.
A few of the factors you should consider when purchasing a minority stake in a business include:
- What will your involvement in daily management be?
- Will you have involvement in business decisions regarding fundamental corporate changes, including selling the business?
- Will you be paid your equity from current operations?
- Under what conditions will you be able to sell or be bought out?
- What are your rights to distributions if the company is sold or dissolved?
Discussing the above topics with your prospective business partners can ensure that everyone is on the same page and you know what you are getting yourself into. Make sure you get all agreements put into writing.
If you are worried about the cost associated with hiring an attorney to properly document your agreement, you should consider how much it can save you in the future if it avoids litigation. A seasoned business attorney can help you anticipate problems you may face and how to handle them in your negotiations. The more unequal the partners, the more important it is to have attorneys involved.
Owning a minority interest in a business can be valuable, especially when the business is sold. You can financially gain from a small investment that has substantially grown over time. However, if the majority owner is difficult and uncooperative, it can put your investment in jeopardy. Let us help you protect your interests by negotiating on your behalf and drafting an Operating Agreement that protects you.
The Swenson Law Firm is located in Sacramento County and we proudly serve businesses of all sizes from all over the State of California. Contact us today to learn more about how we can assist you. With our years of complex business trial and litigation experience, we are an effective, efficient and affordable choice in representing you at the bargaining table and in the courtroom.