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Monday, January 23, 2012

Nothing Like Arguing By Yourself -- or -- What Happens When Your Client Changes Positions Without Telling You...

I really enjoy contract negotiations.  The repartee can be invigorating, and the opportunity to make a huge difference is immediate.  However, from time to time...a client will really catch you off guard and the results can be either frustrating...or humorous.  I was negotiating on behalf of a business client who was concerned about her interests in a business venture she owned.  She had brought in investors and executed share trade and invest agreements in return for money, and was quickly learning she ought to have hired counsel when doing those agreements.  Regardless, she was concerned she would be pushed out of the business if the group of investors "ganged" up on her and voted her out (she had not split share classes or protected her interests in this regard).  Initially, she had taken quite a hard stance...and we had pursued a vigorous "do what I say or I will buy back your shares and kick you out" type approach.  At one of our final meetings, when all seemed to be going our way, and after three hours of really "un-fun" posturing and puffing...she completely changed her mind. She decided she did not think they (investors) were trying to hurt her, and she merely wanted to live trouble free (think butterflies) and make money from the company via residuals -- without a care in the world for the number of shares she owned or who had control of the company.

I was left standing there more than a little surprised.

I later learned she had taken a "buy-out" offer made behind closed doors (or at least outside of MY earshot). Turned out to be a bad move (and I strongly suggested it would be). The company has not done well without her leadership, and her profits have been quite slim.

Moral of the story -- make sure you have good representation BEFORE bringing in investors or spreading shares to other parties. Mistakes at the beginning seem trivial when a company is small and not successful...yet. But after a surge in growth and productivity, poorly designed share and/or control plans can cost you big!

Secondly -- don't waste the time of your lawyer. If you are willing to take a buy-out, or just are tiring of the fight, be frank about it. It's humiliating and frustrating to waste a lot of time...for nothing.

Sean R. Hanover, Esq

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