Investors won’t invest in a business enterprise unless they have an understanding of how they can get their money back. A company’s business plan must explain the strategy for creating liquidity for the investors, whether it be through a sale of the business at some future date, a public offering, or the generation of sufficient cash flow to be able to amply reward investors with dividend streams.
The founders of a company who are seeking funding should understand that the appearance of investors on the team means that the company can’t be run simply for the glory of the founders, and that business exigencies may require that they pay serious attention to transactions that may not suit them personally if they benefit the stockholders of the company generally. For example, a takeover bid from a competitor may be so generous as to be irresistible, even though it may cost the founders their jobs.
Companies positioning themselves for a public market IPO need to be mindful of the tax, accounting and securities issues that will arise during the initial public offering. These issues may affect the choices made for executive compensation, the tax elections made by the company, and even the choice of entity.
Careful planning at the outset is essential if a company is to make a smooth transition as it grows. Sunstein is available to assist you with all your business needs. To discuss the legal issues pertaining to your company’s establishment or growth, please contact our Business Practice Group.