By | February 16, 2015

If you are presently outsourcing a reasonable amount of business that is not a core market for you, you might want to partner with a company who does focus on this market. Partnering may mean making an investment in the partner company and becoming a minority shareholder. Some items you should consider before making this investment:

  1. Can the company produce the outsourced business with its present equipment and at a cost-effective price?
  2. What will be the makeup of the board of directors? When would management need to seek board approval for capital expenditures, management compensation, or other critical issues facing the company?
  3. What rights would you have to require the company to re-purchase your minority interest and in what time frame? What method would be used to determine the value of the minority interest?
  4. In the event that the majority shareholder would offer shares for transfer or sale to an outside party, would the minority shareholder have a right of first refusal to purchase those shares?
  5. If a sale by the majority shareholder to the minority shareholder was contemplated, how would the revenues that the company is receiving from the minority shareholder be valued?
  6. How would the minority shareholder receive any remuneration on an annual basis, i.e. management fees; dividends; etc.?

These are a few issues that should be pre-determined before taking a minority interest. The more issues that can be negotiated and agreed to upfront, the better it will be for all concerned.


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