Legal Question in Business Law in Hawaii

I am the sole proprietor of a small assisted living facility. The market value (as best I can tell without having had a formal valuation performed) is $550-600K. One of my employees would like to invest $100K in exchange for equity in the business. Who customarily pays the legal fees when part of a business is sold - or is this negotiable? With this employee only ending up with a minority stake in the company, are there any pitfalls that you can think of that I need to watch out for? Thank you very much for your assistance.

Asked on 6/13/10, 7:30 pm

2 Answers from Attorneys

Jon Zahaby Tour bus, scenic and sightseeing, operation

Payments of Legal Fees and set up costs for a Partnership Agreement or Operating Agreement (LLC) are generally negotiable. Seller usually pays 60% or more of these fees. However, the payments can also be divided according to future Partnership or Membership percentages.

There are many pitfalls such as voting rights, management, termination, alienation of shares or interest, etc. Therefore, a well drafted Agreement is the best preemptive medicine against problems in the future. Aloha, Jon A. Zahaby

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Answered on 6/14/10, 1:41 am
Kevin B. Murphy Franchise Foundations, APC

Any attorney will say it is not possible for someone to invest in a sole proprietorship. By definition, the business is owned by one person - you. The proprietorship would need to become a partnership, corporation or LLC. Consult with an attorney in your area for specifics.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

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Answered on 6/14/10, 6:31 am

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