R. Shawn McBride recently spoke about how to protect a minority investor.
Hey, folks, it’s Shawn here with you. Saying hi today and asking an important question. Are you a frequent investor? Do you invest in other people’s companies? And if you do, have you thought about the risks of being a minority investor?
We see it happen all too often. People are friends, they go into an investment together. They start building the business and then something happens. Maybe a divorce happens. Maybe there’s a death. Maybe there’s a disability. But what happens then as the business evolves? And if you’re a minority holder, what rights do you have? If you don’t negotiate for much up front, I can guarantee you the most standard LLC forms and documents, stuff that people are pulling from the internet were stuff prepared by the companies lawyers and probably doesn’t have a lot of protection for the minority investors. So if you’re making small investments in a lot of companies, there will be a time that’s going to happen when you’re probably going to hit a situation where you’re not going to have your expected outcome.
And what rights do you have? Most of these rights can be baked into the companies’ documents, whether it be the LLC agreement or shareholders agreement or in the case of a corporation or limited partnership agreement. We can build protections in there for minority partners if we get in early enough to negotiate them. If we wait until after the company is set up, it’s very difficult to get these protections in there. But if we get in early, we can build veto rights in there. We can build rights to sell the shares either back to the company or to a third party or do other strategies to make liquidity for that minority holder. So it’s probably something we want to be doing. It’s something we want to be getting ahead of. So we need to do the planning early.
So if you’re a minority investor, get a good lawyer on your side. Get somebody that’s looking at things from the right angle. It’s protecting you. It’s making sure that the “what if’” scenarios that might happen to your minority investment, protects you. And so you don’t end up left holding the bag if something bad happens with the company.
Is it something you’ve seen before? I would love to hear from you. Reach out to me. Send me a note. R. Shawn McBride. Like my fan page on Facebook. R. Shawn McBride public. Subscribe to YouTube channel at McBride for business. I want to pump this content out to you. I mean we’re creating great stuff based on community questions. And I want people to have access to this. We want to do business better.
Check out our blog at www.mcbrideforbusiness.com and www.mcbrideattorneys.com. Get your evaluation checklist at www.mcbrideforbusiness. And if I can help you in any way, let me know. I want to hear your questions. I want to see what they are. If we get enough questions on there we’ll create some content for it. Get it out there for you. But also if I can work with you one on one or with a group for some training or speaking, let me know. I want to help people with these things. It’s something I’m very passionate about. Let’s get to the next level folks. Let’s do the good things. Alright, Shawn McBride signing off with you. I will talk with all of you again soon.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Thad Zajdowicz.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.
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