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Thread: Family business owner retiring

  1. #1

    Default Family business owner retiring

    I have been involved in a family owned and operated business for over 20 years. I myself am family of the owner by marriage only. I have been presented with the opportunity to become a partner in in the purchase of business. My question is I am not in a position to go to the bank and carry a loan for my portion of the business, I am being told I would be able to purchase my portion of the business with being there for knowledge for day to day operations. My question is how can I go about making sure that I can protect myself in the event the money partner wants to sale or get out how can I protect my knowledge investment of the business. Please keep in mind I am not real up to par on the legality of business law or admin I have been out in the actual day to day operations of the business.

  2. #2
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    Odds are your in-laws will need to finance the sale. Banks, contrary to what they tell us, are not real crazy on loaning money to small businesses - especially a purchase loan.

    As for protecting your investment, make sure your lawyer draws up the paper work and ensure that there is a "first right of refusal clause" if either you or your partner decides to cash out. This clause can be a two edged sword so make sure it is worded fairly for both you and your partner.
    Brad Miedema
    Fulcrum Saw & Tool

  3. #3

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    First and foremost thanks for the reply and any advice I can take into consideration, With the finance of the business the in-laws are prepared to finance the business I am just trying to protect myself for the time after the owner happens to pass on. I don't want to help grow and build this business with a strong back and bad credit to be burned once partner has a change of heart. Not saying this will happen but as I have learned over the years "if it can it will".

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    Did I understand you correctly that you are not actually investing money into the business? I read it as though you were going to stay on toe work/manage the business but not take ownership. If that is the case there isn't much you can do. Depending on what this business is, and if your moniker is an indication, I am not sure what proprietary ideas you would be looking to protect.

    If you are taking on an ownership role then I would agree, get an attorney to review all documents with your partner before you sign anything.

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    One could invest money in the business by borrowing the money from somebody else -- doesn't have to be a bank, could be a loan from the person you are partnering with, or a loan from the seller of the business, for two examples. Obviously if you are borrowing from your partner, you have to work out the loan repayment terms and the partnership agreement together. Of course you would have to find a partner willing to put up 100% of the money at the beginning but give you 50% equity from the get-go, on the expectation that you will pay for it over time.

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    You obviously have built up a good reputation with the owner over the past 20 years. It’s not unusual for a dedicated and trusted long term employee to be offered an easy opportunity to take over or share in a business.

    Because the owner wants to retire he NEEDS to be able to trust that the business will continue to run properly. It sounds like the owner basically offered you a sweat equity deal, “you run it, you earn it”.

    A vesting schedule may be the fairest. For each year you run the business successfully you earn some equity. Maybe 10% a year for 5 years until you are a full partner.

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