Two employees buying out a founder who held every card

The situation

Indah and Dewi sat across from us at our first meeting with a single question they had clearly been rehearsing: could they actually afford to buy the company they had spent a combined eighteen years helping run? Indah worked as an actuary and Dewi as a professional engineer, both senior enough at the firm that Jomar, the founder, had approached them first when he decided it was time to step back rather than opening the business up to an outside buyer.

The company, a mid-sized engineering consultancy valued in the low millions, was Jomar's, in every practical sense. He had built it from nothing over two decades, still owned all the shares outright, and had no real financial pressure forcing a quick exit. That mattered more than it might have in a different sale, because it meant Jomar could walk away from the negotiating table at any point without much personal cost, while Indah and Dewi, who had committed emotionally and were stretching to finance a purchase in the low millions between them, could not.

Jomar's opening position, delivered at their first real negotiating session, was straightforward: he wanted a holding company set up above the existing operating company before any sale closed, with Indah and Dewi buying shares of the new holding company rather than the operating business directly. He explained this as standard practice for a sale of this size, which was not wrong, but he also made clear, more than once, that he had the resources to have his own advisors build whatever structure best suited him and was in no hurry if Indah and Dewi wanted to negotiate every point.

That combination, a legitimate structural request wrapped around an openly stated willingness to wait out anyone who pushed back, was the environment Indah and Dewi walked into our office describing. They were not naive about the power imbalance. What they wanted to know was whether there was a way to get a workable deal without simply accepting every term Jomar's side proposed, given that he held nearly every practical advantage at the table.

Neither of them had been through a business purchase before, and both were candid about how much of their own savings, and their sense of professional identity after years building the firm alongside Jomar, was riding on getting this right. That was part of what made Jomar's openly stated patience so unsettling to sit across from: he was not bluffing, and both of them knew it.

The legal problem

The reorganization Jomar proposed was, on its own terms, a legitimate and common step ahead of a share sale. Interposing a holding company above an operating business before a sale can allow a departing owner to access certain tax treatment on the disposition of shares that would not be available on a direct sale of the operating company's assets, and it can also isolate the operating business's ongoing liabilities from the shares actually being purchased. None of that was suspicious by itself. The problem was how the reorganization interacted with everything Indah and Dewi were trying to negotiate around it.

Once a holding company sits above the operating business, the buyer is no longer simply purchasing an operating company with known contracts, known liabilities, and a known balance sheet. They are purchasing shares of a holding company whose only real asset is its ownership of the operating company beneath it, and the terms of that reorganization, how debt was allocated, what representations and warranties survived the restructuring, what happened to existing shareholder loans and retained earnings, all had to be renegotiated inside a structure Jomar's side had designed and Indah and Dewi's side had not.

This created two separate problems. The first was technical: a poorly structured holding company reorganization can create unintended tax consequences for either side, disrupt existing financing arrangements the operating company relied on, or leave ambiguity about which entity actually carries which obligations after closing, all of which needed careful review under both the Business Corporations Act governing the corporate mechanics and the Income Tax Act provisions bearing on how the reorganization and subsequent sale would be treated.

The second problem was practical, and it was the one Indah and Dewi had actually come to us worried about. Because Jomar's side had proposed and was driving the reorganization, every default assumption in the draft documents ran in his favour: representations about the operating company's condition were narrower than what Indah and Dewi would normally expect from a founder who had run the business for two decades, the purchase price allocation favoured Jomar's tax position over theirs, and the financing structure Jomar proposed, a vendor take-back note secured heavily against the business itself, gave him substantial ongoing control even after the sale closed. Jomar was not hiding any of this. He said plainly, more than once, that he had built the structure to work for him first and was willing to let the deal die rather than materially change it.

What we did

1. Had our own accountant independently model the tax consequences of the reorganization for Indah and Dewi's side rather than relying entirely on Jomar's advisors' characterization of it as neutral to both parties. This confirmed the holding company structure itself was not, in its basic mechanics, unfair to Indah and Dewi, which let us focus the actual negotiation on the specific terms layered on top of a reasonable structure rather than fighting the structure itself and burning goodwill on a point we were unlikely to win.
2. Prioritized which terms mattered most and consciously let go of the ones that did not, since Jomar's openly stated willingness to walk away meant a negotiation demanding everything risked losing the deal entirely for the sake of minor points. We worked with Indah and Dewi to rank the representations and warranties, the vendor note security, and the price allocation by actual long-term financial impact, so our pushback concentrated where it counted rather than spreading thin across every clause.
3. Negotiated broader representations about the operating company's known liabilities, since the narrow language in Jomar's initial draft would have left Indah and Dewi absorbing risk for problems that existed well before they ever took ownership. Jomar's side resisted the request initially, but agreed once we tied it specifically to matters within Jomar's own two decades of direct, personal knowledge rather than framing it as a broad, open-ended expansion of his obligations.
4. Pushed to reduce how heavily the vendor take-back note was secured against the operating company's assets, since Jomar's original proposal would have given him a lien covering essentially everything the company owned, limiting Indah and Dewi's practical ability to raise further financing or make ordinary business decisions without his sign-off for years after the sale had technically closed. We proposed carving out working capital and day-to-day receivables from the security package entirely, so routine operations would not need Jomar's consent even while the note remained outstanding.
5. Brought in outside financing to reduce reliance on Jomar's vendor note, giving Indah and Dewi a genuine alternative source of capital rather than needing to accept whatever terms Jomar set simply because he was, at the outset, the only realistically available lender for a deal this size. Even a partial replacement of the vendor financing changed the underlying negotiating dynamic meaningfully in their favour.
6. Documented a clear post-closing governance arrangement addressing precisely what decisions would require Jomar's consent while the vendor note remained outstanding and what would not, since the original draft left that boundary vague enough that Jomar could plausibly claim broad, ongoing control over daily operations well beyond what a typical secured lender would expect. We listed the consent-triggering events specifically, such as taking on new secured debt or selling a material asset, so Indah and Dewi could run the business day to day without checking in on every decision.
7. Advised Indah and Dewi directly on which remaining points were worth accepting once the substantial financial risks had been addressed, being honest with them that continuing to push on every remaining term risked the exact outcome Jomar had signalled all along he was prepared to accept without much cost to himself: no deal at all. We walked through what each further concession would actually cost them financially against what conceding it would preserve of the relationship needed to close.

The outcome

The sale closed through the holding company structure Jomar had proposed from the outset, and on financial terms that remained, taken as a whole, more favourable to him than to Indah and Dewi. The purchase price allocation stayed close to Jomar's original position, and the vendor take-back note remained a meaningful part of the overall financing, though reduced from his opening proposal once the outside financing covered a larger share of the purchase price than either side had initially expected.

Indah and Dewi did not get everything they had originally asked for, and they understood that going in as a realistic likely outcome rather than a disappointment discovered only after the fact. What they gained were the protections that mattered most in practice: broader representations covering liabilities from Jomar's two decades running the company, a materially reduced security position on the vendor note that preserved their practical ability to operate and finance the business independently, and a documented governance arrangement that gave Jomar meaningful oversight without ongoing day-to-day control over how the business was actually run.

Jomar retired fully from active involvement roughly a year after closing, once the vendor note's early conditions had been satisfied in full. Indah and Dewi have run the company since on their own terms, making financing and operating decisions independently rather than through Jomar's continued involvement, which was ultimately the outcome that mattered most to them once it became clear the deal's harder financial terms were not going to move any further.

Looking back, both Indah and Dewi described the negotiation less as a fight they won than as a set of trade-offs they went into with open eyes, having decided in advance which concessions they could live with and which ones would have genuinely undermined their ability to run the business afterward. That distinction, worked out before the pressure of the table, was what kept a lopsided negotiation from becoming a deal they later regretted.

What you can learn from this