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Thread: Employees taking over a business / Owner

  1. #1

    Default Employees taking over a business / Owner

    Hi just wondering if anybody can help/advise.

    We have had a potential chat about taking over the business as the owner is due for retirement in a few years.

    Owner - due to retire owns the business 100%, he also owns the building / office on a personal bases, so the business pays rent to the owner who still pays mortgage, obviously discounted rate to himself.

    He has asked 4 of us to equally take a share with in the business (He feels with people having a share people have a interest in the business which is correct) he has suggested.

    Owner still owns 51%

    49% between 4 employees = 12.25% (employees are then to manage the business fully) - (Owner will still be in the background with interest help advise if needed.

    I feel that out of the 4 employees 1 of us should slightly have more or 1 person needs to be ideally in charge? is this the right thing to do?

    Then reading around isnt it correct the owner to give up 100%? i understand he would still lease the building to us which we would pay from earnings made from the business? but then buying the shares we would need to be putting money in, im scared that the 1 or 3 may pull out years down the line, and scared that any debts if there is any to come in future will land on the the employee (S)

    Hope it makes sense

  2. #2
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    I'm sure you realize that 51% might as well be 100% when it comes to control. Not sure what you have to pay the current owner but he will always be in control with 51%.

    On your other concerns, you may want to incorporate a "new" company with the 4 employees that will then own 49% of the existing company. You can then control that side of it with your own structure, and/or, equity share. You can have president or managing member to be in charge. As for debt just be careful about personally guaranteeing or cosigning any debt instruments, including leases.

    I would pay most attention to the 51% and the current financial debt structure of the company before moving forward. Remember 51% makes all the decisions, including spending and borrowing, hiring, firing etc.

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    This does not sound like a good idea. If the retiring boss stays around, he will alway be the boss. If he stays around part time, he will be a part time boss and the company will lack stability. If he leaves everything up to the 4 of you, there will infighting for control. None of those options work out.

    Tell him to sell the business, and you guy either stay under a new owner or move on.
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    I don't agree to just pass on this opportunity, it may be a good deal. just be careful. Make sure someone is in charge other than the current owner. Don't accept the 51% deal without some restrictions on his authority and some way to ultimately get control. Also beware of the lease terms with him. Remember he can sell the building and/or his ownership without your knowledge and leave you with a lousy landlord and /or partner. BTW-what is the business and how much does he want? Any other info you care to share may be useful.

  5. #5
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    If you are going to take over the business, make sure you get a look at the books and make sure it is a business that will actually generate a profit into the future. Or at least make sure you have a plan to improve the business if it is underperforming. Just a thought.
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    There are many ways to structure a deal like this to make it successful. But I agree with the general comment that the seller shouldn't retain control. Either he retires or he doesn't. You could create two classes of ownership, one with voting rights, the other without. Or you could have certain types of decisions that require a supermajority. It all depends on the operating agreement. You need to consult an attorney on this.

    All things being equal, it would be best to control the real estate and ownership is best. Depending on your local market, ownership costs under a long term CRE loan are cheaper than renting. But you could control the property through a property written lease. Any lender will require you to have rights to occupy the property through the term of a loan. Generally, if the real estate is part of the deal, the other stuff becomes easier to finance, and you could get a 25-30 year term.

    You'd have to comply with other loan terms though and I don't know any lender who would do this without a personal guarantee. They will also need for you to put some of your own money into the deal and may ask for seller financing of a portion.

    Hope this helps. You can PM me if you have any other questions. This does not constitute legal advice. You should consult with your attorney and make you own decision on this one.

  7. #7

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    I would agree with the posts above:
    - Get a lawyer to protect yourself and your interests
    - Run a business analysis on your cost and how long it will take to recoup that cost.
    - Remember you need to put profits back into the business to grow it. (As a 51% share holder, the current owner gets to decide those numbers.)
    - You will need to lock in a lease agreement as part of the transaction. (If he actually removes himself, you need to protect yourselves from an increased rent)
    - Does he have kids? A wife? What happens if something happens to him?
    - Does 1 of the 4 have the ability to buy out his ownership? How well do you like the other 3 people?

    I go back to point number 1. If this is something you are considering, you need to get a lawyer.

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