Currently we have the opportunity to buy into an established sole
proprietorship business which the current owner wants sell a portion/share of
the business to form a LLC company which she can retire as a silent partner
with limited involvement. Currently the business is 2 full time employees
which have the option to be part of the formation of the LLC. The deal is
something to the effect that to buy into the business for a collective sum of
30k upfront and 10k annually salary for 20yrs for the current owner as a
silent partner. The current owner is looking to get 230k over a 10 period
which she will hand over her remaining share. The 10k a year would be more
less a payroll expense than actual out of pocket payment.
What are our recommended options for coming up with the initial 30k other
than personal loans, remortgaging the house, or using personal finances? We
have more than enough to cover it financially but another individual is
interested/offered to split the buy in to be a 3rd partner. Possibly small
business loan but the other individual has no collateral, fresh out of
college, and has a high debt ratio. Going into a sb loan with someone who has
nothing to risk is leary. On the other hand this individual believes that the
business loan would be paid through the company so no worries on any out of
pocket expenses.
any thoughts?
You really need to contact a lawyer and have him/her look at the issue and
create a legal sales agreement. You will need a lawyer to create a
partnership agreement so you may as well get the person involved early on.
One issue is that as a sole proprietorship, the business is not currently
recognized as a separate business entity from the owner. Therefore, the
business and all its assets are her personal property. I am not sure how
converting to an LLC with potential partners listed as managers might affect
the sale. An attorney can tell you. The attorney can also structure the
payment plan to protect all parties involved.
I don't think this 3rd person will get a business loan. All lenders will
require the loan to be secured by the assets of the business (not to mention
be guaranteed by all owners - including the silent one). But, with the lien
on the assets - the other partners are actually securing the loan - not the
one that is getting all the benefit and holding no risk. Seems that the 3rd
person will get all the benefits and push all the risk off on everyone else.
You might be better off this way. If the 3rd person is going to bring $10K -
their third, the other two memebers could lend the $10K to the 3rd person and
then collect that $10K back plus interest from the work the 3rd person does
for the LLC.
Other than that or the 3rd person bringing his/her own money - it does not
make any sense - financially or business - for you to include this person.
Tell the 3rd person to talk with his friends and family or try to go down and
get a personal loan. If that does not work, then, they can get a regular job
and save the money needed - if they really want to be your partner - then,
they would be willing to do anything to get that $10K.
This is an interest situation that you are describing. There are a lot of
moving parts. While it is possible to get financing for the purchase of a
business, it is not clear if after giving the first $30K that you would own
the business outright or just a portion of it. This is important because most
lenders would require all significant owners to guarantee, and this is
something the current owner might not be willing to do that.
In my opinion, this third individual needs to come up with some money to buy
into the company himself. Otherwise, what is he bringing to the table?
The one thing that I would advise is to go over the numbers and see if they
make sense. You also want all of this to be in writing and with specific
clauses about how to deal with possible conflicts. Three partners might feel
like two partners too many.
BizResearcher | Window Shopper | 12/4/2012 - 1:15 pm
create a legal sales agreement. You will need a lawyer to create a
partnership agreement so you may as well get the person involved early on.
One issue is that as a sole proprietorship, the business is not currently
recognized as a separate business entity from the owner. Therefore, the
business and all its assets are her personal property. I am not sure how
converting to an LLC with potential partners listed as managers might affect
the sale. An attorney can tell you. The attorney can also structure the
payment plan to protect all parties involved.
BMT | Window Shopper | 11/29/2012 - 7:45 am
require the loan to be secured by the assets of the business (not to mention
be guaranteed by all owners - including the silent one). But, with the lien
on the assets - the other partners are actually securing the loan - not the
one that is getting all the benefit and holding no risk. Seems that the 3rd
person will get all the benefits and push all the risk off on everyone else.
You might be better off this way. If the 3rd person is going to bring $10K -
their third, the other two memebers could lend the $10K to the 3rd person and
then collect that $10K back plus interest from the work the 3rd person does
for the LLC.
Other than that or the 3rd person bringing his/her own money - it does not
make any sense - financially or business - for you to include this person.
Tell the 3rd person to talk with his friends and family or try to go down and
get a personal loan. If that does not work, then, they can get a regular job
and save the money needed - if they really want to be your partner - then,
they would be willing to do anything to get that $10K.
loanuniverse | Window Shopper | 11/28/2012 - 11:22 pm
moving parts. While it is possible to get financing for the purchase of a
business, it is not clear if after giving the first $30K that you would own
the business outright or just a portion of it. This is important because most
lenders would require all significant owners to guarantee, and this is
something the current owner might not be willing to do that.
In my opinion, this third individual needs to come up with some money to buy
into the company himself. Otherwise, what is he bringing to the table?
The one thing that I would advise is to go over the numbers and see if they
make sense. You also want all of this to be in writing and with specific
clauses about how to deal with possible conflicts. Three partners might feel
like two partners too many.
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