Private investments can benefit both investors and business owners, especially from a financial standpoint. However, private equity law can be complex, and some investors and business owners may not have enough legal knowledge to protect their interests themselves. With a basic knowledge of this area of the law and adequate legal representation, you can set yourself up for success.
What Is Private Equity Law?
Private equity law deals with the legal aspects of capital investments made in private companies. These companies are not publicly traded or listed on public exchanges. Instead, private equity firms make individual deals with the companies they invest in. Equity, in this context, refers to the shareholder’s stake in a company, typically measured in shares of stock. There are different types of private equity investments, including venture capital, growth equity, and buyouts.
There are other forms of private investments outside private equity, such as private credit and certain real estate transactions. Investing in a family or friend’s business may also qualify. Several laws, including but not limited to contract and securities laws, govern private equity investments.
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What Do Private Equity Lawyers Do?
Private equity lawyers are concerned with the legal aspects of the transactions, including the following:
- Due diligence: Private equity lawyers can conduct due diligence to detect possible legal risks like investment fraud, regulatory breaches, and conflicts of interest to mitigate losses.
- Negotiation and drafting: Private investment attorneys can help you negotiate favorable terms before concluding a transaction. They can also review and draft investment contracts, ensuring the terms accurately reflect your interests.
- Litigation and dispute resolution: Private investment attorneys can help you resolve investment disputes through litigation, arbitration, or mediation, depending on the facts of the case. They can assess the validity of your legal claim and implement practical strategies.
Top Legal Challenges for Private Investments in Small Businesses
Below are the top three challenges regarding private investments in small businesses:
1. Raising Capital
Small businesses need capital to grow, yet most entrepreneurs need further education about raising capital. They may also lack insight into the legal implications of each capital structure. Using the services of legal professionals can bridge this gap, helping ensure you close deals smoothly without adverse legal implications.
2. Conflicts of Interest
Since most small business owners are mainly concerned about raising capital, some fail to conduct proper due diligence before closing a transaction, possibly leading to conflicts of interest. A conflict of interest occurs when one party involved in the investment has competing personal or financial interests capable of compromising their objectivity or impartiality. If not carefully considered or disclosed properly, a conflict of interest could unwittingly burden someone with legal liabilities. These liabilities can lead to adverse financial consequences.
Partnering with experienced attorneys can mitigate the legal implications of conflicts of interest, including breach of fiduciary duty, misappropriation of opportunities, lack of disclosure and transparency, voidable transactions, and regulatory infringements.
3. Changes in Law
Some business owners and investors can navigate initial legal and regulatory roadblocks, but the main challenge is to keep up with the changes. Legal challenges, which may arise through the departure from judicial precedents or statutory modifications, can affect parties’ rights and liabilities. Consulting with attorneys can help you make informed decisions and protect your investments.
Common Private Investment Disputes
Here are a few examples of some of the most common private investment disputes:
- Breach of contract: Disputes often arise when a party fails to fulfill their obligations under an investment contract.
- Shareholder disputes: Members of companies have disagreements about diverse issues such as corporate governance, profit distribution, asset management, and dilution of ownership.
- Fraud and misrepresentation: Disputes may arise when a party engages in unlawful activities, such as misrepresentation of facts or failure to disclose material information, resulting in financial losses and the nullification of transactions.
- Breach of fiduciary duty: Disputes can arise when an individual, such as a company executive, fails to act in the best interest of the investors or breaches a fiduciary duty.
- Regulatory and compliance issues: Violating statutes, such as anti-money laundering, privacy, and tax laws, can result in regulatory enforcement actions.
- Exit and liquidity issues: Investors sometimes dispute when a party seeks to exit their investment. These disagreements may relate to the pricing, timing, or method of exit.
Private Equity Litigation: What to Expect
Before instituting legal action, your attorney will assess the case to ascertain whether you have a legal claim. Experienced attorneys often rely on litigation as a last resort when all other attempts to resolve the dispute fail. Some alternate dispute resolution procedures are discussed in the following section.
If the informal resolution of your dispute does not succeed, your lawyer may file a lawsuit. Litigation generally involves the following stages:
- Filing a claim
- Service of processes
- Pleadings
- Discoveries
- Trial
- Appeal
Additionally, note that a case can be settled at any point prior to trial.
Alternate Means of Dispute Resolution
Besides litigation, there are alternate means of resolving disputes, such as arbitration and mediation. These mechanisms are less formal than the traditional court system and are typically faster. With arbitration, an arbitrator or panel of arbitrators make decisions called arbitral awards. In comparison, mediators encourage and facilitate the resolution of disputes through settlement agreements between the disputing parties.
How to Protect Your Private Investment Assets
Protecting your private investment assets is a top priority. Here are the steps you can take:
- Contracts: Detailing your rights and obligations can protect your investment assets in case of lawsuits. It can also deter others from breaking the law.
- Legal arrangements: Leveraging legal arrangements such as investing through trusts and limited liabilities companies can protect your investments.
- Ongoing legal consultation: Consulting with a private investment attorney before taking a step can mitigate the risk of investing in unduly risky or unstable investments.
Schedule a Consultation With Calabrese Law Associates
Calabrese Law Associates helps individual investors and businesses with their private investment challenges. We serve clients in the Greater Boston Area and throughout Massachusetts. Our clients choose us as their private equity law firm because we offer:
- Experience: Calabrese Law Associates has assisted clients with complex private investment matters. Our lead private investment attorney, Peter Calabrese, has a track record of finding practical solutions to problems.
- Personalized solutions: All cases are different, so we treat them as such. We offer personalized legal solutions, taking into account the client’s needs.
- Transparency: Our combined supportive but transparent approach enables us to build longstanding client relationships.
- Assertive representation: Our attorneys provide friendly yet efficient legal support, regardless of the size of the case.
Do you have a legal issue you need help with? Schedule a consultation today!
This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.”
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