Starting a Business

Is it legal for a majority owner of the family business to invest in a competitor because the competitor would sign a 5-year contract to buy products from you?

I am 35 years old and have been working for my parents for 20 years. I have been managing a division of the business for 15 years. My father, who owns 51 percent, wants to buy into and help expand an up-and-coming business owned by a former employee of our biggest competitor. He plans on using our good credit to get a personal loan to do the deal on his own.
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Opinions expressed by Entrepreneur contributors are their own.
Generally, a majority owner has the right to control the decision-making of the company. However, he runs into a possible conflict of interest/fair dealing situation if he hampers the business's credit to do a deal that the business will not profit from. In addition, the investment in a business of a potential competitor is problematic, as business owners have an obligation to place the interests of the business first.

If you have a shareholder's (or other ownership agreement) in place, there may be rules about the voting percentage needed to authorize an "interested" transaction of this type (such as, simply 51 percent majority isn't sufficient; you might need 66 2/3 percent).

You have some thorny issues here and would be well-advised to speak with an attorney about your situation.

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