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I know that you are primarily focused on the percentage of share you should receive from buying into a business, but also don't forget to consider the type of legal entity this business is established as to determine what type liability you could possibly take as a owner in the company.
The various types of entity structures are C Corporation, S Corporation, LLC (Limited Liability Company), Limited Partnership, General Partnership, Sole Proprietorship.
When considering where to invest, as an owner you want to reduce your risk, so you must question the liability upfront. For C, S, and LLC's, there is no personal liability for shareholders/members. With a LP, GP, and SP - there is liability in which you could be personally held accountable (sued). But since you are operating under a legal business entity yourselves, you shouldn't have too much to worry about.
Another item to consider when buying a piece of the company is being aware whether profits or losses flow through through the entity or not to you which will impact your personal income reporting.
While this is just the tip of the iceberg, there are a lot of factors to consider when acquiring a business.
My advice is that if you are cloudy or unsure about any of this, I would seek further research by finding out this company's structure and learn the pros/cons about it. Secondly, I would build an advisory team of an CPA (with a Tax Law emphasis so you know your personal income & tax changes), a Lawyer (who specializes in creation/works with legal business entities who can help review this company structure you want to buy into and make suggestions and review over your contracts/agreements with prospective companies).
Depending on the business structure, you may want to review the Business Plan and any corporate shareholder or organizational meeting minutes to see what type of business decisions that have been made and settled in the past on whether you should invest or fund a company/business. For an LLC, some states may not require for the owners to keep record of one.
As a fan of the Rich Dad philosophy, you may gain further insight into the due diligence process for buying a business.
How to Buy and Sell a Business: How You Can Win in the Business Quadrant (Rich Dad's Advisors) and Own Your Own Corporation: Why the Rich Own Their Own Companies and Everyone Else Works for Them (Rich Dad's Advisors
Steven Mac
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