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We are a start up co. that has access to capital. a public co ask us for cash. how do we proceed in our best interest?

New York, NY |

The cash will help them expand and we can use there distribution for our product. We would like to stay independent. How do you suggest we go about this?

Attorney Answers 3


  1. There is no quick answer to your question. This is a complex structure which requires that both parties address numerous issues. For example, is the injection of cash to be treated as a loan or as equity. If it is a loan, is it secured, senior, or subordinate or unsecured? Is the interest rate fixed or variable? What is the maturity? What are the terms , if any, for acceleration in the event of default? If equity, is the company issuing new shares or taking shares from treasury stock?
    You need to consult with an experienced attorney.

    THE INFORMATION CONTAINED IN THIS POSTING IS FOR GENERAL INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. THE FURNISHING OF THIS INFORMATION DOES NOT CREATE AN ATTORNEY CLIENT RELATIONSHIP. AN ATTORNEY CLIENT RELATIONSHIP REQUIRES THE FURNISHING, REVIEW, AND SIGNING OF A RETAINER AGREEMENT.


  2. Mr. Feinberg is correct - this question involves a number of different complex issues that cannot be answered with the limited information that you have provided. In order to ensure that your company proceeds in a manner that protects your company and best serves the interests of your shareholders/members, you really need to consult with an attorney experienced in these matters.

    Interesting that a public company is looking to a start-up for capital, typically its the other way around! Regardless, this could be a very beneficial arrangement for your company, and I cannot stress how important it is for you to reach out to competent counsel.


  3. If you have the cash, you are able of course to drive this deal. As a first step (aside from hiring competent counsel), you should have a non-disclosure agreement in place in case things go south. You may want stock, warrants or options in return for the cash and distribution. There are many possibilities and a host of questions that will be driven by the nature of the product being distributed, where it is being distributed and what the ultimate business objective is for both parties to the deal. Be prepared, however, to open the proverbial kimono on your business during the course of the other's company's due diligence of your books, records and financials.

    The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.

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