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I'm currently in a situation where I am working with a friend as an independent contractor for his small >10 person firm. The firm itself was an LLC, about 10 years old. I met him a couple months ago and he gave me the opportunity to work with him on a commission basis.
Currently, he has changed the business to an S-corp and is asking me to become a 51% shareholder. I am both a minority and female, so, in our industry, doing this will mean the firm can take advantage of certain opportunities to bring in more steady business. I am terribly inexperienced in the ways of business and law; I really don't have much of a clue about it. I would be a majority shareholder, however, he would not require me to buy any shares. I would technically only be a majority by name, since it is his business that he put in years to build.
So, should I go through with this? I'm intrigued by the possibility of more steady work, since this is only commission based and pretty soon I'm going to need a steady income stream. Also, I'm enjoying the independent contract situation vs working a regular 9-5 job, so to be able to make a living doing it would be ideal for me. But is this incredibly risky?
I assume this is to take advantage of government programs for minority and female owned businesses. Even though your example is obviously not in the spirit of the programs but one where putting a figurehead as the owner qualifies them for government programs and contracts.
I'm currently in a situation where I am working with a friend as an independent contractor for his small >10 person firm. The firm itself was an LLC, about 10 years old. I met him a couple months ago and he gave me the opportunity to work with him on a commission basis.
Currently, he has changed the business to an S-corp and is asking me to become a 51% shareholder. I am both a minority and female, so, in our industry, doing this will mean the firm can take advantage of certain opportunities to bring in more steady business. I am terribly inexperienced in the ways of business and law; I really don't have much of a clue about it. I would be a majority shareholder, however, he would not require me to buy any shares. I would technically only be a majority by name, since it is his business that he put in years to build.
So, should I go through with this? I'm intrigued by the possibility of more steady work, since this is only commission based and pretty soon I'm going to need a steady income stream. Also, I'm enjoying the independent contract situation vs working a regular 9-5 job, so to be able to make a living doing it would be ideal for me. But is this incredibly risky?
Well, the other posters are correct. He wants to go after the government biz. I have a friend who was brought into a company under almost identical circumstances. They made a ton of money for a while, but his business partner died of cancer and left a lot of loose ends, ones that his widow exploited to screw my friend over in the end.
Mind you, being the majority shareholder would be really great opportunity IF this is a going concern, IF he hasn't acquired a bunch of debt, IF he has done business in a highly transparent way, IF you have an iron-clad contract, and IF he intends to make you a real-deal partner as opposed to a figurehead.
To me, I would agree in principle as long as you are allowed to look at the books and ask a bunch of questions. Then have your own CPA and attorney, guys who really understand this area of law, perform the due diligence for you.
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