Need for an Exit Strategy When Starting a Business
When business people are starting a new company together they are most often thinking about its future and their potential profits. Those initial investors and managers are, at that point, happy to be working together and see the true potential that they can provide their customers, as well as the potential gains for themselves. Unfortunately, however, many are short-sighted when it comes to considering the possible difficulties that can arise in any business relationship.
Problems can arise in a business for many different reasons. These include arguments over distribution of profits, how best to serve clients, which product is best for the market, what roles within the corporation individuals should play, and an infinite amount of other problems. If the initial investors have not carefully thought out how to deal with these problems prior to them arising, then they are required to negotiate in a situation where they are already upset with each other and unlikely to be able to reach a settlement happy to any, let alone all.
In order to prevent this situation, initial investors should begin by carefully setting out an agreement, which deals with potential problematic situations prior to them arising. This agreement could be part of the shareholders agreement in a corporation, the operating agreement in a limited liability corporation, or the partnership agreement in any form of partnership. This agreement should include different provisions, including what roles within the company all are going to play, i.e. who will be president, treasurer, secretary. The corporation should also decide at the shareholder and director levels who will enforce these rights and who will be a tie-breaker if a mutual cannot be reached.
Perhaps the most important element of these types of agreements is what is often known as a “Buy-Sell Agreement”. A Buy-Sell Agreement sets forth the terms and conditions under which any one of the initial investors can sell their investment. This prevents the original founders from being forced to work with people whom they did not originally foresee. It also allows for the setting of a fair price for ownership interest, should the group no longer be able to work together.
The setting of a new price is especially important when there will be a number of small investors and one large or majority investor. If a dispute arises, oftentimes that majority shareholder or majority owner will be able to control the business, to the great detriment of the minority shareholders. If this situation continues and the investors are unable to reach an agreement, the minority investors may have to bring a lawsuit for involuntary judicial dissolution of the business. This is often a disastrous consequence for all involved because it is very difficult for any one to get a fair price for a business when it is being split up and the sale mandated by a court.
In order to prevent this situation, the Buy-Sell Agreement should set forth the price under which the partnership interest, limited liability corporation member units or shares will be purchased in the event of a shareholder leaving. The simplest form is to set up what is known as a Right of First Refusal, where the corporation or other shareholders have the right to purchase the ownership interest at a price negotiated with a third party. However, this presents problems for the selling shareholder, since many are not willing to bid full price for a business when they know that another party can swoop in through exercising a Right of First Refusal.
Other ways to set value can be based on book value, i.e. the value of the assets owned by the business. Companies and investors might also elect to value based upon revenue or profits. Another popular choice is to retain an independent appraiser with expertise in that specific field of business to set a fair value for the business interest being sold. None of these situations is right in all circumstances; instead, they depend greatly upon the specifics of the business in question. For this reason, it is important to consult with a corporate attorney licensed in your jurisdiction whenever engaging in any investment opportunity.
Nationalities Eligible for an E-2 Visa
The E-2 Visa is a form investor visa available for citizens of countries with which the Unites States has entered into a reciprocal treaty with. Though there are a number of requirements for the investment and applicant, which will be more fully examined in a later blog post, the first threshold issue is whether the applicant has the necessary nationality. One factor to keep in mind is that because the spouse of an E-2 visa holder is also eligible for work authorization, an application can be submitted based upon the nationality of either member of a married couple.
The countries from which citizens are able to apply for an E-2 investor visa are:
Albania, Argentina, Armenia, Aruba, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Cameroon, Canada, China (Taiwan), Colombia, Congo (Brazzaville), Congo (Democratic Rep. of the), Congo (Rep.), (Kinshasa), Costa Rica, Croatia, Czech Republic, Ecuador, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Gibraltar, Grenada, Haiti, Honduras, Iran, Ireland, Italy, Jamaica, Japan, Jordan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Liberia, Lithuania, Luxembourg, Macedonia, Mexico, Moldavia, Mongolia, Morocco, Mozambique, Netherlands, Netherlands Antilles, Norway, Oman, Pakistan, Panama, Paraguay, Philippines, Poland, Romania, Serbia Montenegra, Slovakia, Slovenia, Spain, Sri Lanka, Suriname, Sweden, Switzerland, Thailand, Togo, Trinidad & Tobago, Tunisia, Turkey, Ukraine, United Kingdom, Uzbekistan, Yugoslavia, Wallis & Futura Islands, Western Sahara.
