QUESTION.
I’ve begun initial discussions with a potential partner/investor for my small but growing company, and need to find a lawyer who has experience in merger/aquisitions. I’ve been advised by another SCORE volunteer counselor that I should not conduct negotiations myself (good advice!).
ANSWER.
Bringing on a partner or investor is not really a merger & acquisition (M&A). M&A’s are when one business wants to buy another business. Such a situation involves TWO businesses. But you describe a situation where you have a business and someone else wants to buy into it as either a part owner or investor.
You do not mention whether your business is incorporated, an LLC, or just a simple sole proprietorship. In any event, you will need to have your business appraised. You can do it, or you can pay someone to do it (like a CPA firm). You need the appraisal so you know what your share of the “new entity” will be. For example, let’s assume your business appraises at a value of $100,000. And the new part owner is going to contribute $100,000. Of course, you may not want to sell 50% ownership. You may want to only sell 25%? In such a situation you could only take a $50,000 contribution from the person who wants to join you in business.
It would appear logical that profits will be divided 50-50 when you both own 50 percent of the business. Now what about working the business? If you continue to work it, and the new part owner just wants to be an investor, then you have to devise a salary to compensate you for your efforts. Then whatever profits are left over after you get paid your salary would be split 50-50.
You don’t need an attorney who is expert at M&A. What you need is to educate yourself on buying and selling a business. Then you can contact almost any attorney who will represent you in formalizing what you want to accomplish by bringing in a new part owner of YOUR business. Consider taking a look at the book “Buying and Selling a Business (ISBN: 0471657026). Read it and study it. And read my book review for it.
The best attorney for you to consult when you are ready would be one who does a bit of work helping small business owners. The CPA firm that does your appraisal can probably point you in the correct direction. If you don’t have a CPA firm do an appraisal (and I recommend you do it yourself), then you still might want a CPA firm to review your work for a nominal fee and then ask it what lawyer it would recommend.
I think I have answered your questions. Good luck! Regards, -Jeff
Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
www.jlippin.com
