He's worked at an architectural firm for 20+ years, has a chunk of equity already (I think) and the owners want to transfer/be bought out by some of the employees. He's coming down this weekend to ask advice. I don't think I can help him besides telling him "Talk to a ____________ "

Fill in the blank? CFA (Deane?), business lawyer, what's his best source of information so he gets the best deal here?

 

What type of business is this: a partnership or a corporation? In either case, I would first want to see why his boss is seeking to leave the company. If he has genuine reasons to leave the company or sell of his shares; it would be logical but getting rid of his share of the company on an incline can be an indicator of future problems with the company. Of course; get it checked by an accountant first.

I would recommend getting a CA to go over his companies financial records and to make sure ratios were not inflated to increase market price or yearly earnings. If all financial records have been audited and have indicated a fair assessment of the companies position; it might be worth the while to purchase his remaining shares/hold in the company.

You would probably need to get your brother in law to speak to a lawyer regardless; to go over the contract. Best bet to see what type of compensation the boss is seeking for his remaining share in the company and if there is any potential your brother in law might get "screwed over" by any of the agreements in the contact.

In short; get your brother in law to speak to a CA and a contract lawyer to look over the agreement and he should be fine. Probably the best bet as well in a case such as this; where the couple thousand spent on a lawyer & a CA can prevent alot of $$ hassle in the future.

 

Interesting sounding opportunity Wayne. I laughed at the CFA part which I'm not ,other than a "come from away"!

The best advice I would have is to speak to a good corporate lawyer experienced in contracts, sale/purchase agreements and also a seasoned accountant to examine all financials etc.

If it were me I would be interested in the valuation of the business; terms of payment; anti compete clause(probably not an issue); financial statements, company health and market analysis; existing contracts and obligations; compatibility and terms with other potential partners; owner/partners exit terms and strategies; overall affect on retention of other key staff and clients.

Doing a google search for buying a business may even provide a question or two he hasn't thought of. Proper due diligence is key to his decision and negotiations.

Good luck to him.

 

Asad and Deane, thanks for the replies. You're right, Deane, I totally misunderstood some past reference you made to CFA, I'm LOL too now. OTOH I know you have some experience in the world of business, so I value your input.

Asad, I believe it's a partnership between the two principals; they have run it for 30 years and are simply looking to retire and want their long-time employees to take ownership of the company. They have always looked after their staff very well and shared generously in the profits. I don't think they are looking to screw anyone over, they just want to take their share and go fishin'.

Anyway, it's good business to get these things checked out by an expert and I'll pass along your advice. Again, much appreciated, fellas.

 

My pleasure. Past reference was to CFP (planner) not analyst.

Most of these kind of things I've heard of are excellent opportunities because senior staff have a good idea of what they're getting and the owners want and need them to succeed. Often the owners offer financing which helps them reduce tax burden by taking their money out over time. No doubt they've already had some good succession planning advice too.

A friend of mine is in a complicated big $$ law suit now in a similar situation. Longtime VP of an engineering firm that had an agreement in principle and tables turned on him at last minute. For now it's stopped transfer of the old guy's company to other employees though.

I'm sure your brother in law won't have that problem though.

 

No problem. If it is a partnership; I am not sure if the CA will be as crucial as a contract lawyer will be. If a new partnership is going to be set up; having a good agreement and ruling out all possibilites in case of extremes (a partner leaving company like this, death, etc.) is the best bet; something most partnerships tend to forget.

Sorry for the late response; but how did everything go?

 

Still in the works, I suspect it won't be final for a while yet. I passed along the collective advice, many thanks, guys.

 

Thanks for posting Wayne. I noticed the thread and was thinking about this again just today. These things always take quite a while to consummate.