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Negotiating Your Own Buyout May Be Shortsighted [and Is Often More Costly than Paying an Attorney]

Many new clients come to me after they have already negotiated their separation from the company – usually shareholders who have agreed to be bought out – and now want me to just “write it up.”  Kudos to these clients for at least not attempting to draft the entire agreement themselves.  The downside is that these clients often have no idea the harm they may have done to themselves already by negotiating without assistance.

When you consult an attorney after a deal has been mostly finalized, there is often much more to do than simply “write it up.”  How do you know that you negotiated the best price possible for your shares?  Were you fully aware of all your rights, or were you essentially negotiating from a position of weakness?  If you were not aware of the rights afforded to oppressed minority shareholders in New Jersey, it is very likely that you did not push for as much as you could have gotten.  Was an appraisal performed that was commissioned by the company?  Do you believe for one second that this appraiser was actually “neutral”?  Were you aware that you could have gotten your own opinion of value?  Were you in possession of all the financials of the company so that an expert could advise you of the company’s true value?

Questions abound regarding more than just the purchase price.  Could you have gotten better payment terms had you negotiated from a stronger position?  What about security?  Many people simply do not understand the critical importance of security, what types of security you could ask for, and precisely how vulnerable you are without it.

Usually, after this type of conversation, the client understands that the deal he just negotiated was significantly inferior to what it should have been, which is why the majority shareholders agreed to it in the first place.  Now, when I set off on a mission to get a better deal, you can guess the first thing the opposing counsel will say to me.

“We have a deal!”  “You’re just coming in and trying to stir up trouble!” “We’re not going to start from scratch and renegotiate something that just took us a month to finalize!”  (The exclamation points express the vitriol that often accompanies such comments.)  After the initial posturing, usually the other side realizes that the client now has representation, and that the deal has to be revisited.  But having to backtrack on many key terms makes negotiating much more difficult than it needs to be.  And every so often, you will run into an attorney on the other side who has been carefully planning for this, and pulls out the email that makes it appear – sometimes convincingly – that a final, enforceable agreement had actually been reached, regardless of the fact that no formal document has yet been signed.

In one case, the lawyer representing the company had emails stating that the parties “had reached a final agreement,” and my client had to spend over $50,000 in legal fees just to have a court declare that the deal was not, in fact, final, and that he had the right to back out of what appeared in the emails to be a final deal.  The next client may not be so “lucky.”

If you are a minority shareholder who is negotiating your own buyout – either because you feel oppressed, you were terminated as an employee, or you just want to leave the company – do yourself a favor. Use a lawyer while you negotiate your deal, not after.  In the long run, you will likely be much better off.

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