June 12, 2010It's Your Company Now...Except For The Owners
"I've been out of work for quite a while now, but have been given the opportunity to work for a friend of mine who has a fast-growing technology company.
The business is organized as a limited liability company (LLC) and my friend has been the sole owner up to now, but he is planning to raise capital from several individual investors who are friends of his from the local country club.
I would be the President and Chief Executive Officer of this company. My friend would still own the majority of shares in the company but says he would not be involved in the day to day operations of the business as he wants to pursue other interests. He has asked me to sign an Employment Agreement which, among other things, would prohibit me from working for another company in the same or a similar business for three years after I leave the company.
I know I should have the Employment Agreement reviewed by an attorney before I sign it, but are there any other things I should be concerned about before I say 'yes' to this opportunity?"
You bet there are . . .
Your friend seems to be going to great lengths to convince you that you will have "free rein" to run the company as you see fit, and that he and his fellow country club mates will just sit back and watch while the money rolls in.
Don't believe a word of it.
If this has been his company since Day One, it will be impossible for him to just sit back and watch while you run it. I guarantee he will be in your face every day, micro-managing every step in the operation, telling you what to do, when to do it, and how to do it.
Even if he's a good guy, he has a fiduciary duty to the investors he brought in and may be exposing himself legally to them if he spends too much time on the golf course.
What your friend wants is a flunkey who will do all the dirty work while he and his buddies kick back with a brew at the country club, enjoy the good life, and make all the strategic decisions you will then be expected to implement . . . or else.
One of the most rigid and inflexible rules of the entrepreneurial world is that "you should never join a family business if you are not a member of the family, or have married into it." That is the situation you are being asked to buy into here.
In addition to reviewing your Employment Agreement, your attorney should also look at the Operating Agreement for your friend's LLC - the document (similar to a Shareholders Agreement for a corporation) that says who the owners of the business are, who will run the business, who makes the big decisions, and so forth. If you are not named as the "manager" of the LLC, then the LLC will continue to be run by the owners. If your friend will be the majority owner after he brings his investor buddies on board, then you will be reporting to him.
To ensure that you will have "free rein" to run the business:
the Operating Agreement should clearly state that the LLC is run by one or more "managers," not the owners;
you should be named as the sole Manager; and
the Agreement should state that you can be removed from your Manager position only "for just cause" - for example, you are convicted of a felony, embezzle funds from the company, or engage in fraudulent activity that leads to a grand jury indictment.
If the Employment Agreement grants you shares in the company, or options to acquire shares, these should be voting shares giving you the right to attend meetings of the LLC owners and a veto power over major decisions (such as mergers and acquisitions, or the sale of a key product) which might put you out of a job.
You should also consider asking for a "no jerk-around" clause in your Employment Agreement. This is a provision entitling you to quit your job without further obligation to the company (including the three-year noncompete) in the event the LLC owners take action that will make your life miserable, for example:
forcing you to relocate your home or office more than 50 miles from its present location;
denying you office space, reducing your support staff, or taking away other perquisites that a Chief Executive Officer normally enjoys;
making management decisions without your participation; and
significantly increasing the amount of travel you are required to perform.
Oh, and while you're at it, why don't you ask for a membership in your friend's country club, with dues paid by the company? If your friend balks at that, it's a sure sign he sees you as a potential caddie, not a potential member of his golf foursome.
) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at
. COPYRIGHT 2010 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS.COM. Permission Granted for use on Dr.Laura.com.
Posted by Staff at 1:10 AM