QUESTION
I am looking in to investing in a daycare business and am wanting to know what things i should be aware of when investing in a small business
Asked on Sep 17th, 2012 on Business Law - Indiana
More details to this question:
the in home day care provider i send my kids to is looking to expand. she currently has 2 houses and is wanting to open up a 3rd house. she has a waiting list of potential clients that is 30 kids long so i see this as a potentially good investment. i am just worried about some of the legality issues. i have not had a sit down meeting with her yet but one is planned later in the week. if i were to become a small percentage part owner of her business would i be opening my self up to potential issues if the business were to be sued? if im just a business investor does that put me at those same risks if I just get paid back with a percentage of the business' equity?
1 ANSWER
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Making a personal investment in someone else's privately held business where you will have a minority interest is fraught with problems. Have you considered what your exit strategy will be? How will you keep track of the progress of your investment, get financial information, etc.? These are issues that even professional venture capital investors have tremendous difficulties with. The liability issues you raise are easily managed, particularly with insurance; but the structural problems associated with such an investment are challenging. You should consult with an attorney who can review the proposed investment and help you document your rights as an investor.
Answered on Sep 18th, 2012 at 8:58 AM