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Subject: OT - Buying out business partner Posted by: WiddleAvi - [25102616] Mon, Jul 09, 2007, 21:07 Hey Guys. About 5-6 years ago I started a business. I did not have any money to start it at the time and found someone to give the money to start it in exchange for partnership. Recently I found out some info about my partner and I do not want to have anything to do with him anymore. I spoke to him about either him buying me out or me buying him out and he said no. What options do I have ? | |||||||
| 1 | Perm Dude ID: 40637918 Mon, Jul 09, 2007, 21:45 | Other than partnership, were there any other conditions of the loan? | ||||||
| 2 | Myboyjack ID: 8216923 Mon, Jul 09, 2007, 21:46 |
Are you sure you're a partnership or have you organized some other way? An LLC or Limited Partnership? Do you have a written agreement? If so, does it cover dissolution? (If you had a lawyer prepare it, you should) Each state is going to have slightly different rules that govern business organizations. | ||||||
| 3 | sarge33rd ID: 76442923 Mon, Jul 09, 2007, 21:51 | If he will neither buy nor sell, you could sell your share to anyone else you chose to I'd imagine. (As MBJ said though, it will depend on the actual organization of the business ownership.) | ||||||
| 4 | Myboyjack ID: 8216923 Mon, Jul 09, 2007, 21:53 |
Re: #3 - If it's a true "partnership" you couldn't "sell your share" under general partnership principles. The only way out, absent an agreement is dissolution of the partnership. | ||||||
| 5 | WiddleAvi ID: 25102616 Mon, Jul 09, 2007, 22:01 |
The only agreement was that he gives money that the business needs in exchange for 50% partnership. We never filed any paperwork. The Partnership was word of mouth. All the legal paperwork is in my name and officially I am 100% owner. I am not looking to screw him over but I do not want him as a partner anymore. Aside from selling my share is there no other options ? | ||||||
| 6 | Myboyjack ID: 8216923 Mon, Jul 09, 2007, 22:03 | You can't sell your share; you can let him buy you out. | ||||||
| 7 | Seattle Zen ID: 46315247 Mon, Jul 09, 2007, 22:26 | Since there is no paperwork, you hold all the cards. You can buy him out for cheap or you can fold the business. Tomorrow, you re-open as "WiddleAvi II - New and Improved". He's in no position to bargain, you can decide how much you want to give him. | ||||||
| 8 | sarge33rd ID: 76442923 Mon, Jul 09, 2007, 22:30 |
Nothing in writing re the "partnership"? If it is legally a sole proprietorship, why MBJ could Widdle NOT sell it to whomever he chose to? Admittedly, I am a "working knowledge" in this realm and nothing more. But isnt it a general requirement of a contract that to be enforceable it must be in writing IF a) the value of the contract exceeds $1,000 b) the terms are expected to last beyond one year or c) it involves an exchange of real property. | ||||||
| 9 | WiddleAvi ID: 25102616 Mon, Jul 09, 2007, 22:33 |
I realize that I could just screw him over. But he does not want to buy or sell he is happy with the business. I want to be fair but I want to force him to either buy me out or I buy him out. One thing I was thinking is that since he refuses to buy or sell I tell him in that case I am shutting the business and we sell all our inventory and equipment and just split whatever we can sell it for. Lets say we had signed a paper that we were equal partners in the business but the document said nothing more then that. Nothing in regards to buying each other out. Legally what would be done then? | ||||||
| 10 | Perm Dude ID: 40637918 Mon, Jul 09, 2007, 22:36 |
If you can't negotiate a settlement with him, you'd have to dissolve the business. Maybe he doesn't think you're serious--but I'd let him know that you'll have to close it down unless he agrees to sell his share. And then follow through on it. | ||||||
| 11 | WiddleAvi ID: 25102616 Mon, Jul 09, 2007, 22:39 | PD - I would definitly follow through with it. If we had to dissolve it and sell all our equipment I would be willing to buy it for more then anyone would be willing to pay for it and it would all cost me a lot less then just buying him out. | ||||||
| 12 | Pancho Villa ID: 495272016 Mon, Jul 09, 2007, 22:44 |
we sell all our inventory and equipment More info needed. What type of inventory? Perishable? Pre-paid? 30 net? COD? Are you the only one capable of selling it? In which case, you would charge an hourly or commission rate? Equipment? Is there a market for this used equipment? Have you determined the devaluation if you bought it new? | ||||||
| 13 | Myboyjack ID: 8216923 Mon, Jul 09, 2007, 22:51 |
Sarge - you're referncing the "statute of frauds' which every state has some version of requiring certain contracts to be in writing to be enforced. The SOF is not going to work to prevent proof of a working partnership that has been ongoing for "5-6 years" as is the case here. Widdleavi can't just take the money and run. He's going to have to settle with his acknowledged "partner" one way or the other. | ||||||
| 14 | WiddleAvi ID: 25102616 Mon, Jul 09, 2007, 22:51 | PV - It is clothing so non-perishable and our equipment definitly has a market for it. Everything is pre-paid. So we own all our inventory and equipment. If I bought him out I would expect to pay 1/2 the value of the business which is all our inventory+equipment plus taking into account some future profits. If we dissolve the business and sold everything I would not be paying for future profits. I would just need to willing to pay more then anyone else. | ||||||
| 15 | Myboyjack ID: 8216923 Mon, Jul 09, 2007, 22:53 | How much return has your "partner" recieved on his initial and any subsequent investment | ||||||
| 16 | WiddleAvi ID: 25102616 Mon, Jul 09, 2007, 22:55 | He has not received any return. Neither of us has taken any money from the business. All profits has gone right back into the business. Not that it makes a difference but he would make a nice return on his investment if he agreed to sell out. | ||||||
| 17 | Myboyjack ID: 8216923 Mon, Jul 09, 2007, 22:56 | It might make a difference. I'm not convinced ya'll are partners; he may just have loaned you some money. | ||||||
| 18 | WiddleAvi ID: 25102616 Mon, Jul 09, 2007, 22:59 |
MBJ - :-) Like I said I am not trying to screw him over. There is no paperwork so if I wanted to screw him over I could but that not what I want. I could definitly say that he was mistaken in our agreement and there is nothing he could do about it. | ||||||
| 19 | Pancho Villa ID: 495272016 Mon, Jul 09, 2007, 23:05 |
he may just have loaned you some money That's what it sounds like. How is your business set up with the IRS and your vendors? I'm thinking sole proprietor like me. I would do as you suggest, . If I bought him out I would expect to pay 1/2 the value of the business which is all our inventory+equipment plus taking into account some future profits. but I would charge your either hourly or commission rate as a business expense against the profit margin, and I would not be conservative with the numbers, since the success is obviously all your doing. | ||||||
| 20 | WiddleAvi ID: 25102616 Mon, Jul 09, 2007, 23:07 | PV - Like I said legally I am the sole owner. | ||||||
| 21 | Pancho Villa ID: 495272016 Mon, Jul 09, 2007, 23:12 | Then it doesn't matter whether or not he wants to sell. You tell him you are dissolving the partnership that doesn't even legally exist with terms that you think are fair. Again, though, don't shortchange the time and talent you've invested to make it a success. | ||||||
| 22 | Building 7 ID: 571192610 Tue, Jul 10, 2007, 00:06 | Is the company name worth anything? If not, tell him you're fully prepared to liquidate/sell the company, most likely at a below market price and split the proceeds with him, and start over from scratch. His other option is to sell his part to you at market price. If he's wise he'll take option 2. Even if you're bluffing about option 1, it would be worth the bluff. | ||||||
| 23 | Razor ID: 36632717 Tue, Jul 10, 2007, 00:38 |
There are only two people in the world that acknowledge that you two are partners, and if you stop believing that you are partners then... What kind of arrangement did you have exactly? Since all of your profits have turned into retained earnings, I guess my question is, what is the point of the business? What was both of your expectations on when and how profits were to be realized and distributed? Who was going to take the loss if the business went under? | ||||||
| 24 | sarge33rd ID: 99331714 Tue, Jul 10, 2007, 10:20 |
How much "say" has he had in the running of the business? What, other than the startup money, has he contributed to the business? If no profits have been paid out to either party, and nothing in writing exists to indicate a partnership, and he has been a "silent" partner...I dont see where you're simply giving him his money plus a "fair and reasonable" interest for the time period in question; would either "screw him over" or leave him with any recourse. In so oding, you would then be "free" of the "partnership" and would continue to operate exactly as you have. (This of course assumes, that you run the show and he has sat idly on the sidelines since forking over the startup money.) | ||||||
| 25 | StLCards Dude ID: 31010716 Tue, Jul 10, 2007, 11:22 |
You've acknoweledged that you gave him 50% 'ownership' in exchange for the start up funds. Does not sound like there were any terms stated as to interest or duration of the loan so I wouldn't think you could say it was a 'loan'. I'm not a lawyer, but it sounds like you did enter into a partnership, but that you never formally recorded the fact. This sounds like a messy situation that you should resolve regardless. One place to start might be to contact SCORE and see if they can offer you some free advice. I think I would call them and set up an appointment. link | ||||||
| 26 | Valkyrie Dude ID: 47042413 Tue, Jul 10, 2007, 17:08 | Who reported the income and paid the income taxes the last 5-6 years. | ||||||
| 27 | Valkyrie Dude ID: 47042413 Tue, Jul 10, 2007, 17:09 | and what State do you live in? | ||||||
| 28 | sarge33rd ID: 76442923 Tue, Jul 10, 2007, 20:17 |
Post 26 does raise an interesting point. (To this legal amateur at any rate) From what I've seen above, the business is not incorporated. Is that correct? If so, and if all paperwork indicates a sole proprietorship, then I would assume that you have been filing a Business Profit/Loss statement with your personal income taxes over the past several years. IOW, YOU have born 100% of the burden of any taxable proceeds from the business and/or YOU have derived 100% of the benefit from any tax deductible losses on the part of the business. Assuming that to be true, while respecting your desire to not shaft your financier, with nothing written to establish a legal partnership, I think you hold all the cards. You could force him to accept your buyout by simply challenging him; "Here is my offer...", said while you pass a check over to him, "take it as payment in full for your share of the partnership, OR...I'll liquidate the business." | ||||||
| 29 | WiddleAvi ID: 25102616 Tue, Jul 10, 2007, 20:41 |
Well I think I am going to go ahead and force him to either buy me out, let me buy him out, or lastly just liquidate the business. I will do this over the weekend and let you guys know how it goes. Thanks all for your input | ||||||
| 30 | Perm Dude ID: 126201018 Tue, Jul 10, 2007, 20:44 | Good luck! | ||||||
| 31 | Razor ID: 36632717 Tue, Jul 10, 2007, 22:12 |
I hope WiddleAvi's next post after his conversation with his "business partner" is not from "WiddleAvi with 8 toes."
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