Advice for investing in local company

somethingcorporate

westy22 wrote: »

You had better let Amazon know that

I'd argue that Amazon do add value and it would take a company with massively deep pockets to even come close to replicating.

Amazon are cheap and accessible - there is your value.

What does the OPs company offer than cannot easily be undercut? If nothing that couldn't be done for a lot less than the OP is potentially buying in for then it really could be a one way ticket to a lot of debt.

thequant

gadgetmind wrote: »

You are looking at paying to be a minority shareholder. While there are some legal protections for minority shareholders, it's still a shaky position to be in.

There has been a lot written on the subject, but maybe start here with one of the first useful google finds.

http://www.charlesrussell.co.uk/UserFiles/file/pdf/Commercial%20Dispute%20Resolution/Briefing_note_-_CDR_-_Minority_shareholders_and_their_rights_-_Jan_2009.pdf

You need to understand the underlying business and its capital structure. You need to make sure that the shares you'll be buying are of the same class as all the other shares and also understand what you rights will be to dispose of your shares in the future. You also need to be clear about what happens if other shareholders decide to sell the company and/or issue new capital.

This is important, if you decide to invest you need to make sure that as a minority shareholder you are adequately protected.

First thing is you should look at the shareholders agreement as you will have to sign a deed of adherance to it. Although as it sounds like the company is going to have major shakeup shareholer wise, there's probably a case for drawing up a new agreement.

The areas you need covering, are "Tag along" & "Drag along" rights.

You need pre-emptive rights in there to stop you being diluted.

Also you need to have a covered what happens in the event of a shareholder leaving, i.e. purchase of shares and valuation processd.

As you are currently an employee, you need a mechanism to protect you should you be dismissed. I.e. compulsory purchase of your shares.

Also it needs to be defined under what conditions the company can be bought out.

Re. valuating process, I would suggest that the mechanism used to value your shares on exit is the same as you use on entry.

Dont worry about insisting on these, as the whole purpose of a shareholder agreement is not to cover when things are good, but when things fall apart.

As I often say in negotiations involving these issues, "if you are so sure they are not needed, then you have nothing to lose by including them"

Regarding minority shareholdings, aslong as the right paperwork is in place, you should be safe.

Although I would insist you do not buying any shareholding less than 5%, for 2 reasons, 5% is the first level of holder that some compulsory rights kick in, and also is the minimun shareholding required for claiming entrepeneurs relief should it ever become applicable.