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Sooooperman
09-01-2013, 01:14 AM
I need help!! I am a manager of a small but very successful family owned restaurant. There are currently 3 people who split the shares of the restaurant. They are split 70% 27% and 3%. The two people who are the 70 and 27 do not actually work at the restaurant anymore. They each only work about 10 hours a week and even then they only do little paperwork. They approached me and asked if I would be interested in opening another store since I have the cash to do so.

Instead of giving me some of their shares, they would just add more shares to the existing store and basically I would become a 10% owner of the corporation. Now here are my questions...

1. What determines what each one of us is paid since some of us work 90 hours a pay period compared to some who only work 10?

2. Does having more shares mean you get paid more?

3. Can the 70% person take anything he wants because he is majority or do all owners have to agree what each owner is paid?

I basically don't want to get screwed over by the current owners who already take a huge income from a store where I am literally doing all the work and the hours? Because if I became owner I do not agree to what the other owners are paying themselves for the small amount of hours they work.

Paul
09-01-2013, 01:22 AM
Pay is not related to shares. It's a seperate issue altogether.

It's not unusual to just add shares, its common. However, yes, the majority shareholders can do whatever they like unless there is some other voting agreement. Just like they are giving you shares they can basically give anyone shares such as other family memebers resulting in your shares being diluted. if you go forward you want a "non-dilution" clause. that means no matter how many shares they issue you will always have 10%.

The 10% equity is essentially meaningless unless the business is sold or profits are distributed. It sounds like they will keep the business at a no profit level by paying themselves more and more.

To a bigger point why would you get only 10% if you are funding another store? Am I missing something?

Sooooperman
09-01-2013, 10:31 AM
According to the current owners, the value of the store is around 850,000. In order to open this new store it would cost me 30000-45000. So they would give me the 5% that I'm buying into plus 5% for all the work I do. But they also haven't even shown me where they came up with this value of the store.

We are also currently in negotiations of me buying them out starting jan 1 2015. I have to wait until then because the 70% person has to show he is still an owner on paper before he turns 62 and can collect social security.

Another question I have:

Lets say this new store opens and it's first month it is in the hole $2,000. The owners then told me all 4 of us would be equally responsible, so we would each have to give up 500 from our paycheck. Is that fair based on everyone being paid different?

My main concern is I feel they know more than they are telling me and I don't want to screw myself over. I mean if they plan on selling to me in a little over a year why would they risk opening another store. Because we did agree that this new store will not affect the overall value of the 850000. So even with the new store it will stay the same.

Paul
09-01-2013, 07:32 PM
It sounds like you are buying into the overall business, not specifically funding a new store. So they value the business at $ 850,000 so 5 % is about $ 42,500 and then they are “awarding” another 5 %. Then presumably the new and old stores together are worth about $ 900,000. You own 10% of that.

But why do they say the new store will not affect the value of the old store, its all one company isn't it? Or is the new store a seperate company? if it is then how much of that will you own?

You really need to know what the first store is really worth. It has to be doing a lot of business to be worth $ 850,000. If you know the volume and profit margin we can figure out the real value. You also need to know how much they are drawing.

But then 10% is still pretty vulnerable to a lot of trickery, if that’s what you are concerned with. Even when it comes time to sell out they can screw you quite easily.

Also, what are the terms of your future buyout of the first store? Is it a signed deal or just talk?

There is a lot to worry about here, although it could be a great deal in the end.

On the loss part on the second store, first since its part of a company that includes the first store the shortage should be covered by the company. The profit and loss of both stores should now be consolidated. If it can’t be covered that way then it should be by percentage of ownership. So you should be liable for 10% because you can only benefit at 10%.

But remember, try to seperate your employment and pay from your investment. It's really two different things.

Really need a lot more detail to figure this one out.

It sounds like you are very vulnerable here. Technically they could even fire you at any time unless you have a long term agreement.

Sounds like you are not at all confident in dealing with them. Your gut reaction is probably the best way to go.

Compare what you could do with your $ 45,000 on your own with this deal. Once you give them that money its gone and you have to depend on returns from the business to recover it. What would 10% of the profit each year be?

I have to admit I'm a bit confused here.

Fulcrum
09-02-2013, 08:40 AM
Cheapest solution - call your lawyer and accountant. They are by far the most qualified to give you proper direction.

Sooooperman
09-02-2013, 05:32 PM
paul i thank you for your help...do you have a personal email that i can reach you at?

Paul
09-02-2013, 10:12 PM
You will eventually need a lawyer and accountant but before you retain them you do need to have as much information as possible ready for them. It seems like there's alot of questions that still need to be resolved.

I'm at frontlineplans@yahoo.com

Thanks, Paul

billbenson
09-02-2013, 10:21 PM
Paul, friendly advice. Put emails and other personal info in a PM. I'd ask a moderator to remove that if I were you, even if it is on your website.

On edit I noticed it's on your signature. And its also a free email. I still have the same advice. Email harvesters scour the forums much more than individual sites. A lot of people here have businesses that require them to put personal information online. Don't do it unless you need to. I don't use my real name (although my first name is correct), I don't use my actual birthday although it's close enough that people can figure out about how old I am.

ok </lecture>

Sjfine
09-03-2013, 11:04 AM
Paul has some great advice, and you are lacking so much important information. What you have not stated is the legal entity that has been set up -- Corporation?
As an owner, and future by-out, you should begin to educate yourself on the inner workings and bookwork of the company.
If you are told that information is not for you to see, I would be very wary. Hopefully you are receiving a salary commensurate with your work.
I have worked with some folks who want no ownership but receive a great salary. Others feel their ownership is the key to their future.
A bonus plan whereby you are compensated for not only your contribution but for the growth of the business is something to consider, as long as you have autonomy to affect the parts of the business through which you will be bonused.
Is this a family business? Are you part of the family? - If so this is a delicate situation that , along with everything else will require clean and clear legal work.