“Due Diligence” information – What do I need to know. Part 5

The Ownership Structure of a business follows on from the Human Resource Information and it determines the size of the challenge in negotiating a deal in obtaining some or all of the shares in a company or settling on a return on investment in a company. For more information on business negotiations please check out my blog on “Business Negotiation”.

For most small businesses the Ownership Structure may be inherently simple. A single owner holds all the shares and has all the voting power. As soon as there are several partners involved, negotiations may get more complex because there are more powers at play. At the other end of the spectrum, if there is a large chunk of the company in public ownership, negotiations to get a (significantly smaller share) are somewhat easier again. You merely have to make an offer on the stock exchange the company is listed on. If that offer is good enough and a seller sees value in it the deal gets done. Off course this also makes the valuation of the shares much easier than in small and/or unlisted companies. For more information, check out my blog on “Business Valuation: A “How to” guide”.

If parts of the business are owned by multiple parties, businesses negotiations will probably become as complex as they can get. Teams of people will try to thrash out a mutually beneficial deal on behalf of many peoples’ interests and this will cost time and significant professional service fees.

It’s well worth noting that the ownership structure doesn’t necessarily determine the way decisions get made in a company. In large companies a board of directors which might not hold a significant stake (in relation to the whole pie) are at the helm. Even in smaller partnerships, there is likely to be a core of partners (or a single one) that has its hands on the reigns. When buying into or investing in these companies one needs to be sure of the role you’re about to take on and the power you might be buying there to avoid future tension.

Ownership Structure Information

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