I want to talk about something that’s very serious out there, not often talked about, but it’s underappreciated. Investors, if you’re investing in a company, you need a lawyer too. Why? Because you don’t know how those documents are prepared. Those documents were likely prepared by the company and/or its lawyers. And who are they looking out for? They’re looking out for them. They’re looking at what’s best for their interest.
A lot of times I have clients that are investors. They’ve bought into a company, maybe even a limited liability company. But when we look at the terms of the investment, there are problems. They don’t have certain rights. If things go bad they don’t have a chance to veto it, or they don’t have a chance to accelerate their rights or to take control of the company. And, sometimes there are provisions in there about additional capital contributions and additional money coming into the company that circumvents the limited liability. It can be a really bad situation.
So just because you invest in a limited liability company doesn’t necessarily mean you have limited liability. Sometimes, once in a rare while, we’ll see provisions in a limited liability company that circumvents that limited liability. So, we want to be very, very careful. So if you’re an investor, you need a lawyer too. You need somebody looking out for you.
Now sometimes the lawyer will come in and represent multiple investors. This is a great cost-sharing tool and very viable. But you may want your own independent lawyer. The important takeaway for all of this is, just because you’re an investor, just because you’re buying into something that’s been reviewed by a lawyer, doesn’t mean it’s been reviewed from your perspective and doesn’t mean it’s going to do the right things for you. So investors, go out there and think about it. Get a lawyer. Get somebody to help you.
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com/photographer Tom Kolby.
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