Seller Equity Roll Considerations

by a searcher from Harvard University - Harvard Business School

1 year ago

Seller wants to slow down and cash out, mostly, but is willing to roll some equity. Does anybody have any experience for such a scenario? Can you write in an option to purchase the remaining equity or a ROFR on the sale of the minority stake? Any other land mines to avoid or things I should be thinking about?

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searcher from The University of Chicago - Booth School of Business

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9 months ago | like reply | 0 likes

professional from Dartmouth College

Scott's comments above do a great job on the main structural considerations, all of which can be worked out in negotiations. The other principal consideration to think about is that if you are not happy with the former owner's performance as an executive it is tricky to get rid of him since you likely need to buy them out, you don't want a disgruntled shareholder with substantial minority shareholder rights. Suggest planning for that with a call option that can be payable in the form of a promissory note so the company isn't in a position of having to come up with the cash immediately to buy them out.

1 year ago | like reply | 2 likes

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