Q1. As the business owner what would you pay and why?

Q2. As the Capital Company representative what would you expect/ask for and why?

A business owner exchanged 25% of the company's equity (Company A) for ($1.5M) in cash to a capital company (Company B). After just a few years Company A hit success and a larger nationwide firm (Company C) offers to buy Company A. Company C (the buying company) is structuring the "purchase" as a merger. Since the deal is classified as a merger, Company A will be dissolving the legal entity which contains the remaining assets of Company A (basically the cash received from the "purchase"). Company A corporate paperwork states in the event of a "dissolution" the assets of Company A are distributed per the ownership percentages of Company A; so legally the business owner of Company A only has to distribute to Company B 25% of the value of the assets that the company has on its books at the date of dissolution (Cash from the "purchase"). (Scenario A) However, had the deal been structured as an asset "sale" rather than a merger, Company A corporate paperwork states that each Equity partner in Company A receive back from sale proceeds the total amount invested and THEN divide up the balance remaining based on ownership \%'s. (Scenario B) The chart below outlines the different payouts of the two scenarios