Negotiation Q&A

Name: Conrad

Subject: Business Partner/Investor Agreements

Question: Dear Ron, Thank you for considering this question. For the past 8 months, i have been working with a partner in forming a niche service company in the legal industry. Two weeks ago, an investor emerged which alleviated many of our financial risks in forming this entity. Both my partner and i do not have any experience in negotiating business partner/investor agreements and we would like some feedback as to how to protect our due diligence done to this point. Could you recommend some websites or provide insight as to how we can protect ourselves from said investor to ensure we are not viewed as ’employees’ of this entity, but rather equal business partners? Any help or insight you could provide would be much appreciated! Thank you in advance for your assistance in this matter! Best regards, Conrad

Answer: Conrad: Thank you for the question. First, I suggest you read a good negotiation book. One of my favorites is “Negotiate This” by Herb Cohen. It is a quick read and is good for business matters. Because you and your partner do not have experience, I really think you need a good business lawyer to negotiate the deal for you. It sounds like your investor may be sophisticated so do not fall for a suggestion that you let his attorney draft the agreement. You want your own separate counsel to represent you. I hope this helps! Ron Cappuccio


Name: Gene

Subject: Vendor Financing

Question: VENDOR FINANCING I need someone to negotiate (or coach me to negotiate) vendor financing to start an invention-based, online, wholesale/retail store.

Questions: Apart from the viability of the product and the trustworthiness of the vendor, what are the basic principles that govern such negotiations. Does it boil down to competitive bids? Is there a standard for calculating compensation for such financing? How do you prepare for negotiations? Quote: “Is it feasible to negotiate an agreement to fund the manufacturing of an entire project through a vendor who supplies the parts, assembles & packages the product, and supplies the first finished goods for distribution, in return for an exclusive manufacturing agreement for a set-forth period of time.” (or ‘quantity of product’ – sic) This seems to be exactly what I need. My new product (patent-pending) is superior to the competition, can be cost-effectively manufactured by fabrication of sheet acrylic in a relatively small quantity, in short lead-time. It has a ready wholesale/retail channel in a major product-sourcing, online directory used by online stores. I have received quotations from seven contract manufacturers, two or three of which I can negotiate with. The start-up costs are as minimal as one can desire in such an enterprise. Cheers

Answer: Gene: It is very hard to negotiate for yourself and you are right to state you need help. When you have someone doing your negotiating, that person can take positions that you might not be able to take. You should read a really good book on negotiation. I have my law students read “Negotiate This” by Herb Cohen. I am concerned that the proposed deal could result in your business having all of its “eggs in one basket.” Is the vendor a US company? If not, particularly if the vendor is in China or another country noted for ignoring patents and intellectual property, you MUST PAY ATTENTION to Trustworthiness. I would be happier if you had several vendors supply a discrete part with the final assembly in your control. I know you have suggested competitive bidding. As a small customer, you might do a lot better negotiating with a vendor you can trust and with whom you feel a high level of comfort. It is easier dealing with people you know and like. I really suggest that you should retain a good attorney to negotiate the deal for you. I hope this helps! Ron Cappuccio


Name: Majid

Subject: Strategic guidance

Question: I am managing director of a newly stablished representative company in office machines. I started my cooperation with the investor 8 months ago. He owned a company in Euroup and intended to set up a branch in the Midle East. I prepared business plan, expenses estimate, and sales and cashflow forcast. Thereafter everything was approved and the company was started 3 months ago. Then the problems emerged: prolonged insufficient funding, lack of any technical support dipicts a situation that I feel we are going to have serious problems. On the other hand my employer insisted on giving me 15% share of the company instead of paying for my services before the time we sent mails to our customers ie the whole 7 months of our coperation. Moreover after 3 months of full time operation in the company I have not received a single euro. Please tell me what strategy best serves my benefits regarding that the share of a newly setup limited liability company worths nearly nothing. Best regards majid

Answer: Majid: Frankly, there is no easy answer. It sounds to me like you have the wrong business partner/investor. If you do not trust them, I suggest you run from this business as fast as you can. Further, if you decide to continue with the business, you need to clearly state your expectations as to compensation. Set definite deadlines and insist the budget and financing includes your salary. I hope this helps! Ron Cappuccio


Name: Charles

Subject: Business partnership

Question: I publish a small online magazine and project potential growth/success, but lack funding. I have been approached by a media company that is interested in funding the magazine and becoming a partner. How should I approach this business opportunity? What kind of percentage should I offer and what kind of proposal should I expect from this company? Would the two entities merge under one company?

Answer: Charles: First you should research the media company. Have they made other acquisitions? Are the owners/partners happy? Were they offering stock and stock options in the parent? I would use online searching (such as Copernic Agent) and if the company is publicly traded, get their last 10k. Next, think about what YOU want. Do you want to be a small part of a larger company? Would you rather get a loan to keep control? Do you need the resources of a larger company? Next, I would have a generalized discussion to see if there is personal “chemistry” between you and the media company. If there is a good chemistry, you should hire an expert attorney to represent you in the merger/acquisition process. Do not negotiate on your own! Finally, I would read a good book on negotiating such as Herb Cohen’s “You can Negotiate Anything.” I hope this helps! Ron Cappuccio If you have a question., call Ronald J. Cappuccio, J.D., LL.M.(Tax) at (856) 665-2121