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Ask HN: How do you limit liablity in a company as a minority stake holder?

5 points by nickFaraday ↗ HN
Ok, so I have a life long friend who is starting his own business and needs some help (website, biz setup, basic accounting, etc) and wants to give me a small percentage of the company in exchange.

Really, I would do it for free, so I'm not worried about getting anything from him financially for my time... if things work out and I see a return so be it.

My concern is, as lets say a 10% owner/share holder, with two other partners what liabilities do I have? I will not be involved in day-to-day operations and at 10% have very little legal input as to what they do as a company. (Although I would server in an advisory roll)

If things were to go south how do I protect myself? I own my own business (which is my livelihood) and don't want any thing that they do affecting what I am able to do with my business. Really I am looking to protect myself from a worst-case scenario.

Any help would be appreciated.

2 comments

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skmurphy
As a stockholder in a corporation (but not an officer or member of the board of directors) your liability is limited to your investment. In a partnership you have unlimited liability for work related activities of your partners. In a C Corp, S Corp, or LLC your liability is limited to your investment as long as you are not an officer or director. The worst case scenario is that you lose whatever money you have given your friend in exchange for the equity.

I am not an attorney, this is not legal advice.

nickFaraday
Thanks!

That pretty much what I was thinking... but its good to get some confirmation.