How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Dimitry K., Esq. Your Own Question

Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 37669
Experience:  Run my own successful business/contract law practice.
18572087
Type Your Business Law Question Here...
Dimitry K., Esq. is online now
A new question is answered every 9 seconds

I am 50/50 owner in an LLC partnership in Los Angeles, California.

Resolved Question:

I am 50/50 owner in an LLC partnership in Los Angeles, California. We were structuring a plan to vest a third partner into the business when I was approached by a family member with an offer to invest 250K into the business for an equity share in it.

To provide some background... the business is a professional audio consulting/integration/installation/custom cabling/sales business with a growth of 300% in three consecutive years in a down economy. There are many avenues of growth we see the possibility of taking.

Part of the intent of the proposed 250K investment is to restructure the ownership/voting shares such that I will ultimately hold the majority voting rights of the business (I would be assigned the voting rights of the investor who would put me in place as their agent). I was thinking the restructuring to be along the lines of 26% being retained by myself, 25% for the equity share of the investor who put in the quarter million, 25% for my current business partner, and 24% left to vest this third individual into the firm. While ultimately the intent of the investment is to give me 51% voting rights as well as provide us the resources to grow more quickly than we would without an influx of capital, I/we would like to put an operating agreement in place that lays out a procedure of decision-making that is as transparent and collegial as possible (board meetings and open discussions and sharing of ideas) while still submitting that in situations of stalemates, I will have the final say.

My business partners want to feel assured that the businesses' interests and their interests are protected in case our goals diverge over time, and I suddenly decide I want to move to New York with my wife and begin making decisions that are in line with my wants but not necessarily with the company's or theirs.

What are possible suggestions for the structuring of something that makes it difficult for me to take unilateral, hair-brained decisions out of left field my partners are not on board with but at the same time acknowledges that as the majority vote holder, any stalemate will be broken by what I believe to be in the best interests of the company? While I don't anticipate there being but extremely isolated instances of both my partners being against something while I am for it or vice versa, what can be set up to assuage each parties concerns so that we can move forward and all be satisfied with the agreement in place?

Thanks in advance!

Jason

www.ProAudioLA.com
Submitted: 3 years ago.
Category: Business Law
Expert:  Dimitry K., Esq. replied 3 years ago.
Thank you for your question.

The best way to avoid such "hair-brained" decisions is to change or modify what decisions have to be made by majority shares, what have to be made by 2/3 shares, and what decisions have to be made by a "super-majority", that is 77% in your case (essentially requiring all partners to agree). For example you can offer to modify terms that would permit all sales or purchases under a certain amount to require base majority (51%) control, but negotiations with business or signing for an investment beyond a certain amount, or expecting to last longer than 6 months (for example), to take 2/3 shares. Finally, to expel a partner, or liquidate the business, that would require full shares or the super-majority. These examples are just guidelines but you may be able to show that even with 51% ownership, you are no dictator and would still have to run truly major decisions by the other partners before they are implemented.

Hope that helps.
Customer: replied 3 years ago.
Hi, Dimitry. Thanks for your response. It's definitely in the right direction.

In a company worth currently say US$1,000,000.00 ... what would you advise would be a logical "purchases or sales under a certain amount" value for the base majority scenario ... i.e. $10K -- what would you say might be typical and is this based upon the value and liquidity of the company?

And what about in say strategic moves or choices that don't necessarily have a cost associated with them? Say, for example, the choice to carry one brand of speakers vs. another?

Thanks for your input!

Jason
Expert:  Dimitry K., Esq. replied 3 years ago.
Jason,

Thank you for your follow-up. Happy to have assisted thus far.

First of all, I cannot "advise" you one way or another. While I am a licensed attorney, I am not your attorney since I cannot represent you via JustAnswer. If you are seeking actual "legal advice", for that I suggest you retain local counsel to assist you.

Having said that...

As you are aware each business is different, which its own brand of customs and regulations. If in your business product placement and speaker choice is important to growth of the business via a long-term plan, then leaving that choice to be taken between all parties would be a wise solution.

As for the amounts, that is very much based on the comfort level of each of the partners. Some businesses require a $1,000 vote, others $10,000 or $25,000 (these are the limits for growing businesses but those that are in the 7 figures) and some have limits at high as $100,000. Consider offering those options to the other shareholders to see what they feel comfortable with, but be aware that the lower the limit, the more red tape involved (and the slower the decisions get made), and the higher the limit, the less potential oversight there may be in the company.

Good luck.
Customer: replied 3 years ago.
And Dmitry, what are some viable exit strategies that might exist in the situation such as the one described. Let's say we're not talking about liquidating the company but one partner decides he wants out. At what valuation is this done? Current (like now) or at the time the exit is desired?

Lastly, I understand that it's typical with a neutral outside investor to ask the current ownership structure to re-vest their shares so as to secure their continued participation and commitment... in this case, the investor is basically inclined to invest in me and wants me to have control so that I am ultimately accountable for whether things sink or swim... would it be sensible to have my current partner re-vest but not me, or is that unheard of? Should we both re-vest? If so, are these unvested outstanding shares just sort of held onto by the company in the meantime?

Jason
Expert:  Dimitry K., Esq. replied 3 years ago.
Thank you for your follow-up.

[W]hat are some viable exit strategies that might exist in the situation such as the one described. Let's say we're not talking about liquidating the company but one partner decides he wants out. At what valuation is this done? Current (like now) or at the time the exit is desired?
There are typically four possible options:
1) person wants to leave the business with consent
2) person is being pushed out or being bought out
3) death of partner/shareholder
4) sale of shares to a third party not in the business

Each of those can be addressed in the agreement with conditions. Typically you can either have a hard number as evaluation listed, or a business accountant can be used to evaluate the value of the business and therefore the shares, and then set up a buy-out or a sale of the shares.

Lastly, I understand that it's typical with a neutral outside investor to ask the current ownership structure to re-vest their shares so as to secure their continued participation and commitment... in this case, the investor is basically inclined to invest in me and wants me to have control so that I am ultimately accountable for whether things sink or swim... would it be sensible to have my current partner re-vest but not me, or is that unheard of? Should we both re-vest? If so, are these unvested outstanding shares just sort of held onto by the company in the meantime?
Re-investment is a good option but very much based on what the parties agree. The shareholder may reinvest your shares for you, which isn't unheard-of. This is simply based on what the other partners feel to be comfortable and whether or not they are willing to reinvest, or if they are simply willing to bring in the new person as a cash infusion.

Good luck.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 37669
Experience: Run my own successful business/contract law practice.
Dimitry K., Esq. and 7 other Business Law Specialists are ready to help you
Customer: replied 3 years ago.
So scenarios 1, 3, and 4 are pretty straightforward... but what percentage would be necessary to push out/buy out an unwanted partner? Typically?
Expert:  Dimitry K., Esq. replied 3 years ago.
I am sorry but I cannot answer that for you. That is beyond the scope of the original question that you posted at the site. You are free to post a new thread and title if "For Dimitry..." which I promise to answer once notified that you are seeking me out (although not for a few hours as I am about to log off and get some rest).

Good luck to you! If you found my information useful, please do not forget to press the green "accept" button so I can be compensated for my assistance. Thank you!

Sincerely,

Dimitry Alexander Kaplun, Esq.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Last | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
 
 
 

Meet The Experts:

 
 
 
  • Law Pro

    Attorney

    Satisfied Customers:

    1426
    20 years experience in business law - sole proprietor, partnership, and corporations
< Last | Next >
  • http://ww2.justanswer.com/uploads/LA/lawpro/2012-6-25_171315_PT206740s.64x64.jpg Law Pro's Avatar

    Law Pro

    Attorney

    Satisfied Customers:

    1426
    20 years experience in business law - sole proprietor, partnership, and corporations
  • http://ww2.justanswer.com/uploads/DC/DCraneEsq/2012-8-14_14436_DCrane.64x64.jpg MShore Law's Avatar

    MShore Law

    Attorney

    Satisfied Customers:

    1233
    Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements
  • http://ww2.justanswer.com/uploads/FL/FLAandNYLawyer/2012-1-27_14349_3Fotolia25855429M.64x64.jpg FiveStarLaw's Avatar

    FiveStarLaw

    Attorney

    Satisfied Customers:

    1162
    25 years of experience helping people like you.
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    1142
    Run my own successful business/contract law practice.
  • http://ww2.justanswer.com/uploads/ohioatty/2009-1-22_185545_me.jpg J.Hazelbaker's Avatar

    J.Hazelbaker

    Attorney

    Satisfied Customers:

    393
    Experienced and trained in the area of business law.
  • http://ww2.justanswer.com/uploads/scottymacesq/2009-6-10_221523_small.jpg RGMacEsq's Avatar

    RGMacEsq

    Attorney

    Satisfied Customers:

    393
    Licensed Texas General Practice Attorney
  • http://ww2.justanswer.com/uploads/BA/barristerinky/2012-6-10_22423_office.64x64.jpg Barrister's Avatar

    Barrister

    Attorney

    Satisfied Customers:

    301
    13 years practicing attorney, MBA