Consumer Law, Warranties Business Contracts

[wandaf]

I am purchasing a business for 1.2M. I have to raise 500K. I sought out a broker to help me find an investor. The brokerage firm will charge 10% commission, which is probably standard. However, in the agreement they are asking me to sign I am to send in a 5K refundable due diligence deposit. The agreement further states that the brokerage firm will receive a 20% equity position in the business. They said that the 500K would be in the form of a term loan, with the invester wanting a ROI. I dont have a problem with the 10% commission. But Im not quite sure about the 20% equity. Why does the brokerage firm get 20% equity. I thought the investor, if anybody, would be the one who would want some part of ownership. The brokerage firm said that we would form a new entity 80/20 and that no investor will be a partner in the business, they just want a ROI. So if thats the case isnt the interest on the 475K that I will have to pay the ROI the investor will receive. I need someone to help me understand this, because I am so confused and dont want to be taken advantage of.

 

[jharris352]

May I please point out that you are trying to conduct a 1.2 MILLION dollar business deal by asking a FREE forum for advice. I have the ability to answer your question, but I wouldn't even begin to analyse this situation without a great deal more information. You are correct about one thing, you don't want to be taken advantage of, and that you don't know how to prevent that. PLEASE HIRE SOMEONE who can protect your interest. It is absolutely insane to ask a free anonymous forum for advice on a 1.2 million dollar deal.

Get professional paid representation. Good luck..