[thelist] Freelanceer to merge with larger company - ideas please

M. Seyon evolt07 at delime.com
Fri Oct 13 12:04:11 CDT 2006

Message from Chris Dempsey (10/13/2006 11:08 AM)

>My major concern is that I take paid employment and they drop me after a few
>months and I loose my client base.  What can I look for to give myself some
>protection against this?

Hi Chris,

Depending on the size of your client base relative to the new company, you 
may want to ask for a proportional stake in the ownership of the company, 
ie shares. This is related to being named a director I suppose, but you can 
be a director with no ownership.

You're definitely smart to consider exit situations in advance. Make sure 
you follow through with this with no qualms whatsoever. Someone very close 
to me merged his company with another company in 1996 and it didn't work 
out, but there weren't appropriate exit clauses. The matter is still before 
the courts and he's out of pocket about half a mill.

>I guess I'm really looking for some ideas about what it would be reasonable
>for me to ask for eg:
>- Fixed salary plus percentage cut of the money my clients spend [this was
>their initial suggestion]

This is similar to shares in the company, but I'd go for shares over this 
for two reasons:
- gives you a decision-making voice
- % ownership can grow over time, but your client base will remain fixed, 
or probably decline as all new clients will be the "company's"

>- I take a salary only but have option to retain my client base should I
>ever leave or be asked to leave

Keep in mind that clients aren't inert entities. They will be concerned if 
they see you bouncing around, freelance today, with a company tomorrow, 
freelance next week. Depending on their level of trust and affinity to risk 
some may jump ship.

You should factor this into your exit strategy - you will probably leave 
with fewer clients than you came in with.

Also look out for any non-compete clauses in the contract with the company 
because you never know if their clients may want to move with you if you do 

>- Any value to asking to be brought in as a director? [I'm not too clued up
>on whether this would offer any value or security to myself]

Probably not because once there're enough other directors to maintain a 
majority if they wanted to they could easily vote to remove you as a director.

Good luck if the move goes through.

Talk with your lawyer and accountant at every step of the process.


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