What documentation do I need to protect myself in a buyout?
January 15, 2014 12:18 PM   Subscribe

I'm going to be bought out of a business of which I own a part. What documents should I copy and take with me to ensure my interests during a valuation and payout?

Together with my husband and his parents, I own part of company that's going to be valued between $1M and $1.5M. We are amicably divorcing and I am moving 1000 km. away, likely very soon. I am currently organizing everything so that someone can take over my position and thus still have access to all office documents.

While things are amicable, I do have to worry about getting bought out at a fair price (I own 19%, and we've taken deferred salaries since the business began, so the money is effectively my retirement funds to date). Our personal finances have been agreed upon and are not part of the concern.

In terms of valuation, I plan to engage a lawyer once I've left town. What I need to know is whether there is documentation I should be gathering (while I still have access) to protect my interests. I have already made copies of all incorporation documents and minutes.

Is there anything further that I should be copying and taking with me?
posted by sockless to Work & Money (7 answers total)
You need to engage a lawyer NOW! A lawyer will know, better than anyone, what you need to consider. This is nothing to guess at or to play around with.

Amicable is fine, but well-meaning people may not understand the valuation of their business, and may unintentionally undervalue your share.

Find a good business lawyer, who can guide you through this process.
posted by Ruthless Bunny at 12:28 PM on January 15, 2014 [2 favorites]

This is not legal advice, and I am not your lawyer (and if you're using KM, there's no chance I'm a lawyer in your jurisdiction). I'd strongly advise getting a lawyer before you lose physical access to the records.

Are there audited financials? Documentation relating to your salary deferral? Does your 19% figure reflect the deferrals of salary as a contribution to the capital of the business? Are the terms of the buyout already set--e.g., do you get cashed out now completely, or are you getting anything like an earn out from future income? What's the metric for the payment (discounted future cash flows, or some multiple of earnings (EBITDA, etc.)? Do you get a say in the valuation firm? Can you get your own valuation firm? And what about tie-breaking, in that event?

Again, I'm not your lawyer--and, amicable divorce or not, minority owners in businesses are apt to get screwed eight ways to Sunday on buyouts absent 1) legal/contractual protections, and 2) good legal advice. Get a lawyer asap! Don't wait until you're out of town! There is a lot to think about!

And good luck!
posted by Admiral Haddock at 12:28 PM on January 15, 2014 [1 favorite]

I've sold a business, and there are major potential tax consequences, as well as a lot of moving parts to this. Getting a lawyer isn't an indication of a conflict or lack of goodwill in this case; this is just too much money to leave it to chance.

To answer your questions about documents - is there a way to make a copy of the data file in Peachtree, Quicken, or whatever the company's running in? Assuming you have a user id and password to that database, that would allow an attorney, CPA, or both to get just about anything they needed to know. If there are archived years, try to get the backup file made before the year was archived, going back 7 years at least (if the business is that old).
posted by randomkeystrike at 12:48 PM on January 15, 2014 [1 favorite]

To clarify, this may be multiple backup archives. Peachtree, for one, holds the current year and one previous year in its database; anything older gets lopped off. So right now (January 15) a typical Peachtree install will have 12.5 months of history in it, assuming year-end procedures were done. You'd need last year's backup to have 2012 data, the one before that for 2011, and so on.
posted by randomkeystrike at 1:01 PM on January 15, 2014

Response by poster: Thank you so much, you guys. I already have current data files for our accounting program in Dropbox and just added all prior years as well. I also added our financial statements for each of the three years we've been in business.

Off to find a lawyer for me, then! This is nerve-wracking stuff to add on to a divorce, so much on the line but with the added complexity of family relationships. Appreciating the advice.
posted by sockless at 1:04 PM on January 15, 2014 [1 favorite]

In addition to the oh-dear-god-get-a-lawyer advice above (which I agree with!), you should also think about negotiating a consulting agreement with the company for after you leave. They'll likely have questions they need to ask, or issues they need your help in resolving, and you should be compensated for the time you spend assisting them.
posted by NotMyselfRightNow at 2:51 PM on January 15, 2014

Response by poster: That's also excellent advice. We have a verbal agreement that I will receive my current salary for a period of 2-3 months to cover "consulting" time (as well as covering my cell phone payments for communication costs), or they will continue until I am able to secure alternative employment. It's not much, but it will help. You are correct, though - they've been presenting this as a kindness, but I need to get it in writing.
posted by sockless at 5:34 PM on January 15, 2014

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