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Minority Owned Businesses (MBE) and Raising $$$

Discussion in 'General Entrepreneur Discussion' started by DMiller6868, Mar 30, 2017.

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  1. DMiller6868
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    I was trying to search for some information and keep falling short...I've recently started a business with a partner whom is a minority (I am not). He has 51% of the business, I have 49%. We are trying to raise money and the requirements indicate, as the minority, he must maintain 51% of the company. It certainly doesn't seem fair that I have to get diluted from the business in order to get a little cash flow going.

    Are there any LEGAL ways around this from a distribution standpoint? Any creative things I'm not thinking of, or am I avoiding the purpose of us having a "minority owned" business? If my investors were all minorities and they didn't have operating/voting rights would that be permissible?

    Surely this has come up for someone else and I figured I'd start here for some help. Thanks!
     
  2. jon.a
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    jon.a Legendary Contributor Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Is this a problem because of profit split or control?
     
  3. Greg Rutkowski
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    Greg Rutkowski #ChumaMode Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    I know a little about DBEs, MBEs, and WMBEs. I am not sure I understand your problem though.

    If you need to raise money "to get cash flow going", I'd stop right there.

    If you want to maintain your MBE status, your partner needs 51% by federal law.
     
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  4. DMiller6868
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    This is an issue from a distributions standpoint
     
  5. G-Man
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    G-Man Legendary Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    My first thought exactly.
     
  6. Greg Rutkowski
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    Greg Rutkowski #ChumaMode Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    Okay, I got the perfect game plan for you.

    Net Profit= $100

    You get $49. He gets $51. Write check. Sign the back. Deposit into bank account.

    Done.
     
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  7. G-Man
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    G-Man Legendary Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    First make an intro of yourself.

    What does fair have to do with anything? Want fair? Own 100% of the company, do 100% of the work, take 100% of the risks, get 100% of the profits.
     
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  8. DMiller6868
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    That's right, but was just wondering if there's some other creative ways from a distributions standpoint that I can still maintain my original 49% of the business. It seems it might make more sense if we could raise money and he still owned a "majority" between the two operating partners, but we both get diluted rather than keep him fixed at 51% and dilute me...
     
  9. jon.a
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    Lose the mbe benefit.
    The benefit must be worth 2%?
     
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  10. DMiller6868
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    Okay, let me rephrase my statement then. I'm doing 50% of the work, he's doing 50% of the work. He's a minority, I'm not. We've already determined having an MBE status is very valuable and provides a "foot in the door" for many large corporations that require MBE's on their vendor list. If WE want to raise money for cash flow purposes doesn't this requirement inhibit the growth of minority owned businesses because I'm less likely to want to take on any investments? I could do this 100% myself, but I'd rather have a smaller slice of the pie for something greater than my own pie that's much smaller.
     
  11. DMiller6868
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    The MBE benefit is VERY high up front for getting onto vendor lists. Once you're on the list, it becomes less important and diminishes over time as the company grows and the brand name becomes more established.
     
  12. jon.a
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    What's next, a tape measure in the parking lot and office spaces?
     
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  13. G-Man
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    • Cash flow is not the purpose of fundraising
    • If you want the benefits of a minority owned business, a minority has to own the business.
     
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  14. Greg Rutkowski
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    @DMiller6868 I think you have answered your own question.
     
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    Greg Rutkowski #ChumaMode Read The Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    Lessons Learned:
    1. Don't borrow money to pay yourself
    2. By Federal Law, a minority must own 51% of the business to maintain MBE status.
     
  16. DMiller6868
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    Got it! So this business has upfront cash flow requirements that we currently can't meet. It's a staffing business, so I have to pay the person I staff on a project before the vendor pays me. The best small business loan I could get was $70K, which isn't enough. I need to hire some recruiters and others to drive the business forward. This is more of a working capital need for the business, than anything. So if cash flow is NOT the purpose of fundraising, then what is? And how do you suggest I solve my short term cash flow needs? I've thought of an LOC on my house, small biz loan and friends and family, but that is debt that has to be serviced and doesn't solve my cash flow problem...

    I hear your second point, but a minority still technically would OWN the business and a majority of it as well. If he had 46%, I had 44% and 10% was used for equity and raising money, then how does that equation change anything? Sorry for the question, was hoping someone had a creative solution for my dilemma. Wasn't hoping to get bashed and hit with blatantly obvious statements.
     
  17. G-Man
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    G-Man Legendary Contributor Read The Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    I apologize for being rude.

    You came to an internet forum looking for the answers to questions that need to be asked of a corporate attorney.

    Have you read the book on which this forum is based?
     
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  18. DMiller6868
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    Appreciate the apology, even if you were just being facetious. I did come to an internet forum, because I thought this could be a potential scenario other business owners have encountered or potentially found a way to effectively "solve" my problem. I guess I was wrong and would be fine if the answer was "Sorry, there's no creative way to solve your issue".

    Also, I have not read the book, I thought that status showed up under your username if you've read it already, no?
     
  19. Greg Rutkowski
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    @DMiller6868 welcome to the forum. There is a certain finesse to asking questions on here as you may have noticed. There is also a supportive culture here that really wants to help you out. It is nessesary to build up some rep points (give value) and then you will recieve value. As one famous member of the forum once said "the quality of your answers are only going to be as good as the quality of your questions." Please don't be offended. Take your shoes off and stay awhile. Start by introducing yourself and read some gold threads to get a hang on what this forum is about.


    Sent from my SM-G925V using Tapatalk
     
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  20. Greg Rutkowski
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    Just out of curiosity, how long were you guys in business before you applied for your MBE?

    Sent from my SM-G925V using Tapatalk
     
  21. DMiller6868
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    Need to be in business for 1 year to apply for the MBE status
     
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