Private partnership liquidation

[Luck_Club]

I know some on this board have participated in private equity, and I'd like some advice on the following.

Got a message recently that the partnership, LLC I've owned for several years was being sold to one of the managers. Basically realizing a 50% loss on the investment after the first positive earning year in 2018.

I'm quite suspicious of this announcement, because there was no notice of group seeking to exit the investment etc. I only own 2%, so I can see how my vote wouldn't hold much weight, but really just notifying me the deal is done. doesn't seem correct, or is it?

I had to sign all kinds of papers when I invested, so I'm assuming I'm going to have to sign all kinds of papers to exit as well. Will I be forced to liquidate my interest?

Anyone got some advice?

 

[OldShooter]

Well, the first thing to do is to read those "papers." Like the partnership agreement.

 

[pb4uski]

Just going from memory and this is for public companies being taken private but somewhat similar situation... where major shareholders are buying out minority shareholders. Normally there is a special committee of the board that is appointed to assess a related party's offer for the business.... the members of the special committee would be board members who are not associated with the proposed buyers and would be looking to assess the fairness of the offer for the other shareholders. The special committee would typically also hire legal, valuation and accounting experts to assist them in their assessment.

As OldShooter points out.... if there are specific provisions in the partnership agreement they would trump a process like that described above.

 

[Bamaman]

This is when a really good partnership agreement comes into play. Unfortunately, many LLC's and SubChapter S's don't come with good agreements. Every business has a lifespan, and it's important that the partners on front end agree that at certain years in the business that ownerships can be bought, sold and traded. And just owning 2% can be a blessing.

We were part of an inherited real estate partnership, and our partners were CPA/Attorneys. We wanted to sell our part of the real estate to the partners, and they were not too thrilled to come up with substantial cash to pay us off. I would think they took advantage of us, but we were satisfied anyway. Our aunt was the original partner, and she died 3 mos. short of 100 years. Damn right, businesses should have dates to exit before the partners are forced to buyout the others.

 

[OldShooter]

From the tone of the OP, my guess is that this is an LLC that was sold to retail investors who, while maybe "qualified", were not experienced. If so, the partnership agreement (IMO there has to be one) will be very favorable to the general partner and to insiders. So the ride might be a little wild.

If it does start to feel stinky, @Luck_Club, you may be able to get some help by contacting your state attorney general's consumer protection office. Depending on the amount of money at stake, too, you may want to hire some legal advice to at least review the agreement.

 

[COcheesehead]

I went through a similar situation. The partnership agreement should rule here and that’s why it’s wise to read/understand/have legal review when everyone is still smiling at each other.

 

[Luck_Club]

Based on Old shooter's advice, I requested the partnership agreement and original disclosure from the "mgmt" group. I'm away from where the agreement is located. Got a call shortly there after asking to call to clarify what I'm seeking so he can get me the appropriate documents...

FWIW.

Going to respond on e-mail for written record to make sure there is no confusion, since this is such a confusing request..

"Can you send me a copy of the original disclosure and partnership agreement. I’d like to review them with regard to the surprise announcement of a liquidation. My copy is in my other office."

 

[Luck_Club]

From the tone of the OP, my guess is that this is an LLC that was sold to retail investors who, while maybe "qualified", were not experienced. If so, the partnership agreement (IMO there has to be one) will be very favorable to the general partner and to insiders. So the ride might be a little wild.

If it does start to feel stinky, @Luck_Club, you may be able to get some help by contacting your state attorney general's consumer protection office. Depending on the amount of money at stake, too, you may want to hire some legal advice to at least review the agreement.

Yes that is kind of what happened. The numbers looked great. Cash flow was awesome, how could they not make money with the plans in place? but then...several years of losses during restructuring. Finally showed a modest profit to investors last year then boom. gone.

Back to them rentals.. It's just you the tenant and those dastardly contractors

 

[ncbill]

From the tone of the OP, my guess is that this is an LLC that was sold to retail investors who, while maybe "qualified", were not experienced.

If so, the partnership agreement (IMO there has to be one) will be very favorable to the general partner and to insiders.

Yeah, I "got sold" a few investments like that, and am looking forward to their liquidation, though to be fair they're yielding ~6% while I wait.

 

[Luck_Club]

Class B with no voting rights, but preferential payout of cash until investors made whole. I guess lesson learned.