5 ms·
So, you own part of a company as an investor now -- think of it in this context to transform your relationship into a positive one. If they can afford to buy y
by clarkevans 11y ago
So, you own part of a company as an investor now -- think of it in this context to transform your relationship into a positive one. If they can afford to buy your interest out for a reasonable sum, you might agree as a matter of courtesy.
You should carefully engage an attorney to look at the by-laws of the company to verify you are protected as an investor. In some cases, holding onto shares of a company (LLC, for example) could open you up to substantial tax liability without personal disbursements to cover expenses. If these protections are not there (tax distributions, etc), and if you're going to remain an investor, you should ask for reasonable investor protections -- they'll need these anyway.
Most employment agreements have a non-solicitation (for employees and clients), non-disclosure (of trade secrets), and non-compete clauses. These would probably be quite enforceable against business co-founders. If they try to leave you at the side of the road, no need to get worked up about it till they've been successful (get an attorney advice though).
If the existing co-founders are going to invest more of their time in the company, you could, as a part-owner of the company, offer to dilute (on same terms as other owners) as their continued engagement may make your prior labour have value. Ask if you could be on their board to help them see problems in their strategy -- while you probably don't have enough equity to change course, your voice as a technically-minded investor could be positively channelled to help them; they might be lucky to have your kind and productive assistance.
- benajibayassine 11y agoHi, would you please point me to a link that talk to the potential tax liabilities that you mention could happen in the LLC case. I have spent a lot of money because my lawyer and an investor's lawyer were arguing whether such liabilities exist or not. I walked away from the deal by then but I still want to know whether my lawyer was right. I would really appreciate more information.
- daegloe 11y agoUnlike C Corporations, LLCs are pass-through tax entities. This means profits and losses pass through to the individual members. [0] [0] https://www.sba.gov/blogs/6-things-you-need-know-about-your-tax-responsibilities-llc https://www.sba.gov/blogs/6-things-you-need-know-about-your-...
- benajibayassine 11y agoThanks a lot! .. and you would think a lawyer who charges $700 per hour should know that. Motherf*$&er!!
- sre_ops 11y agoThis is not always correct. LLC can elect to be taxes as corporations.
- slamus 11y agoI like this answer
- treenyc 11y agoConvertible note might be a good way to avoid Tax-liabitlies. But check with your accountant/lawyer.