Ask Jade – Illinois Retirement Law
Hi, everybody and welcome to another episode of Ask Jade. In this episode i am going to go over equity investors and your business. So if you’re a start-up or you’re growing and you’re looking to take on some investors this episode is for you. When you take on investors, you know they expect a return but they know they’re taking a risk when they’re investing in a business. If your business fails no return for them but as a result they usually ask for a fairly high percentage of your profits just to kind of mitigate that risk of loss.
They also might ask for salaries to be capped at least in the beginning also to kind of mitigate that risk so you know they could also end up with substantial rights as they were essentially coming on as a partner. That’s how investors work so how much control they have is gonna be up to you. It’s gonna be part of the negotiations and these investors usually will exercise their rights. They could end up with rights on the board. They could have a right to vote and make business decisions , have the right to stay informed about all significant business decisions, things like that. This necessarily doesn’t have to be a negative thing, Often these equity investors have years of experience andcan be a significant source of advice for your business but this is something that you would want to reach out to an attorney about obviously, such as myself, to try to make sure you limit thoserights or understand what rights you might be giving up. Another way to kind of approach this is how your business is set up so you could have a general partnership. If you’re taking on an equity investor in a general partnership, they are gonna have significant rights within your business but you could also have a limited partnership where theycould come on as a limited partner where they would not have management rights in your business. They would have rights to profit but no management rights. That would be on you. The same thing with corporations depending on how you have your shareholder agreement structured. It would depend on their rights when it comes to a corporation and then LLC. This would be in your operating agreement depending on how they come in and howthey would like to exercise their rights. That would have to be set forth in your operating format . When it comes to negotiating with equity investors, you want to make sure youunderstand your legal rights and obligations. What they are going to be getting as investors. You want to reach out to an experienced business law attorney such as myself to make sure that you have the proper documents in place and that you understand your rights.