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Ownership Structure

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They say every partnership ends, one way or another.

Our future operation will be financially backed by a few bar industry silent investors. I will provide no investment capital, but all the sweat, leadership, and creativity. 

For those who have successfully or unsuccessfully funded your distillery from silent partners, how did your attorneys suggest you divide the equity and voting shares to account for your contribution, and ensure you retain control of the brand ?

PM me if discretion is prudent , and have an amazing weekend!

Cheers!

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" bar industry silent investors " will this pass the "Closed House" laws?

The key to investors and partners is to establish YOUR ownership percentage/ownership rights and not let them dilute it with future investments. Don't allow the investors to gain enough control to vote you out!

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Businesses come in two classes - right some shades and cheap sunglasses. In other words, you have investment grade startups and you have founder's grade startups. Investment grade companies are usually funded by investors and are designed to enrich the aforementioned money men. Founder's based business are there to fund the lifestyle of the founders.

The first thing you need to do is decide which one you want to start. If you have a business or law degree and years of working with investors in a corporate situation and you are starting a larger operation in a bigger market then you are in good shape to handle the demands of your investors.

If one the other hand, you have no previous experience dealing with investors and you have only creativity, leadership and sweat to offer - then you have no skin in the game. So, the moment you fail to meet a construction goal or you go over budget on something or miss or a sales/production target you are always running the real risk of being watching your company disappear over the horizon without you.

You will always lose out to the investors in those situations.

So, the moral of the story? Write a comprehensive business plan. Figure out what you really need. You may find you actually have the money or you may find it much cheaper from the bank. Who, probably won't want to lend to you, but if they do - you'll be a lot happier in the long run.

 

 

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In any partnership if you plan for divorce before you get married, things go a lot smoother.  Think of this like a prenuptial agreement where you decide before entering into the partnership, how to exit.  So, what is your sweat equity worth?  If I'm your money man, I don't want the waters to be muddied by a minority partner.  Furthermore, a minority partner has very few rights.  What I would suggest is something where you x% of the gross for each months you were a employed and your get it for x period of time based on your tenure.  You might also want to have a formula for a payout in case the company is sold.  They'll likely want a cap on either number, which is reasonable to me.

The above plan covers firing, quitting or sale of the company.  If you are a minority shareholder it is very difficult to walk away with any cash.

Both the TTB and your State will have to sign off on your investors which may be your biggest challenge.  

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There's way to much to put into a single post - or even a book. The best advice is to have a good lawyer to guide you through this. 

A couple common scenarios to think about. For each one you should think about how you want to reflect that in the agreement. 

1. Everything is cool, you keep close to your business plan, everyone does what they need to do. Eventually people will want to sell their shares, when to do distributions, bonuses, etc. 

2. A partner/owner go nuts/bad divorce, etc. This include purposefully trying to take more money out of the company if things go well. Bad divorces can really do a company in. They may be more concerned with vendeta and not money. 

3. Things go bad, equipment fails, low sales, bad reviews, etc. Investors are pissed. You need more money to go on or you need to file bankruptcy/liquidate. 

 You need to understand how you want to handle these situations and have a lawyer put them into legalese. 

As other people stated above the majority of the agreement will concern duties, milestones, and exits. Research "term sheets" on google. You'll see a variety of rights and riders. One I would have in there is a "Right of First Refusal". It allows investors to get the valuation for their shares (good for them) but you get the option to buy it to keep control (good for you). Watch the control of the board of directors if you have one. Ensure your lawyer keeps you in control. Maliciously savvy investors know how to manipulate them to remove your control. Anti-dilution controls are good for people in your situation that you are bringing the skill/labor and not the money. If things go well then the people with money can force the issuance of extra shares to gain more control of the company. 

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