The Shark Tank “Sharks” sometimes get it wrong on big and important issues.
Kevin often fails to see or understand the value of brand equity. If a product does not have a patent, Kevin feels it is not valuable. If a woman is selling delicious chocolate covered pretzels with vanilla frosting to a wide audience with repeat sales, Kevin will ask what it is that prevents him from doing the same. That question totally disregards brand equity. What about Cheerios? What about Walmart? These are not patented products. They are products that people like, with trademarks people trust, leading to repeat sales. Mark is usually the one to set Kevin straight on these matters.
But an even bigger misconception propagated in the Tank is that an investor needs 51% or more ownership of a business in order to have control over business decisions. This is not always true. In New York, for example, the majority owner of the interests of an LLC does not always have the majority voting percentages. It depends on how the LLC is set up. Alternatively, a member of the LLC may own only 30%, 40% or 50% of the membership interests, but have 51% or more of the voting percentages. The Sharks say that they need at least 51% of the equity so that they can keep control of the operation and protect their respective investments…but in New York, and probably in other states, it’s not true.
Entrepreneurs in New York can continue to have the majority ownership in their respective companies while providing a Shark with voting control over operations. Here is the relevant provision of the New York LLC Law:
§ 402. Voting rights of members. (a) Except as provided in the
operating agreement, in managing the affairs of the limited liability
company, electing managers or voting on any other matter that requires
the vote at a meeting of the members pursuant to this chapter, the
articles of organization or the operating agreement, each member of a
limited liability company shall vote in proportion to such member’s
share of the current profits of the limited liability company in
accordance with section five hundred three of this chapter.
Notice the first sentence: “Except as provided in the operating agreement …”. The operating agreement can say whatever the members want it to say. Each entrepreneur’s state law should be reviewed.
Moreover, Sharks can do deals where their voting percentages increase if they cause sales to increase, or where a Shark’s voting percentages decrease if they fail to induce an increase in product purchases. This would not affect the equity percentages.
Even more simply, a Shark can be designated as an LLC’s managing member to make specified, or even all, operations and management decisions. A Shark can actually have as little as one (1) membership percentage interest to obtain this power.
So, when entrepreneurs refuse to give up 51% or more of their equity where the Sharks theorize that they need this in order to have operations-control to protect their respective investments, entrepreneurs may be right to refuse such offers. They should know that the Sharks can be given voting and management control without having an ownership majority.
And that’s how you bite a Shark back.
Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Learn more at: http://www.neil-siskind-the-fatherhood-assignment.org/
Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to protect and maximize them.
Neil Siskind, Founder, “National Fatherhood Day”- March 29th
Read about the non-profits and charities whose missions Neil Siskind supports at: www.neilsiskindsupports.com
You can read what clients and associates are saying about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.
Neil Siskind’s Volunteer Work:
Volunteer, Memorial Sloan Kettering Cancer Center
Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving
Help Neil Siskind make sick children’s wishes come true: Neil-Siskind/Help-Make-A-Child-Smile.htm
Help Neil Siskind help children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal
Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/champion-children/
Neil Siskind’s Pro Bono Work:
Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com
Senior FreeStart Business- Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
Veteran FreeStart Business- Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
Neil Siskind’s Philanthropic & Environmental Work:
-Hudson Riverfront Land Conservation: The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River.
-Founder & Chairman, The Fatherhood Assignment: A think tank to educate the public about, and advocate for the children of absentee fathers. http://www.neil-siskind-the-fatherhood-assignment.org/
-Founder and Developer of “National Fatherhood Day” (TM), observed annually on March 29th, to encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.
Neil Siskind’s Government Work:
-Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
-Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
-Hartford County Department of Probation, Hartford, CT, 1991, Intern
Neil Siskind’s Community Assistance:
Established and operated a temporary legal clinic offering inexpensive legal services to struggling Long Islanders during the recession to help clients resolve debt, plan estate matters, organize finances, start small businesses and obtain governmental assistance such as Medicaid.
Neil Siskind’s linkedin URL: http://www.linkedin.com/profile/