Dissolving a business partnership
Discussion
Many thanks guys for all the helpful replies. Feeling much better about the negotiations on Wednesday and will be posting an update afterwards.
It is true that I have been working almost independently, certainly during the last 12 months, and it is also true that I wouldn’t be starting again entirely from scratch (my poor choice of words).
It looks like the only partnership asset with any value is the domain name/ website, which I would like to keep if at all possible as it brings in approx. 50% of fee income; any ideas on how to value?
Finally, I have heard that some outgoing partners have negotiated settlements based on their past fee income. Is this relevant in my circumstances, bearing in mind that there will be very little repeat business from the clients of the outgoing partner?
It is true that I have been working almost independently, certainly during the last 12 months, and it is also true that I wouldn’t be starting again entirely from scratch (my poor choice of words).
It looks like the only partnership asset with any value is the domain name/ website, which I would like to keep if at all possible as it brings in approx. 50% of fee income; any ideas on how to value?
Finally, I have heard that some outgoing partners have negotiated settlements based on their past fee income. Is this relevant in my circumstances, bearing in mind that there will be very little repeat business from the clients of the outgoing partner?
rowley birkin said:
It looks like the only partnership asset with any value is the domain name/ website, which I would like to keep if at all possible as it brings in approx. 50% of fee income; any ideas on how to value?
Finally, I have heard that some outgoing partners have negotiated settlements based on their past fee income. Is this relevant in my circumstances, bearing in mind that there will be very little repeat business from the clients of the outgoing partner?
I would reiterate what I said the other day - ask him how much he would pay you. It's as good a way as any of starting the negotiation.Finally, I have heard that some outgoing partners have negotiated settlements based on their past fee income. Is this relevant in my circumstances, bearing in mind that there will be very little repeat business from the clients of the outgoing partner?
I can't see how past fee income is relevant in this matter, unless your current partner is prepared to enter into a long term non-compete agreement.
Have you discussed his poor performance and lack of interest before this, or is this the first he's hearing of it?
There's little inherent value in the business so I'd approach from the standpoint of adjusting drawings to match income, and then looking to see if he will resign if that doesn't work out.
There's little inherent value in the business so I'd approach from the standpoint of adjusting drawings to match income, and then looking to see if he will resign if that doesn't work out.
desolate said:
I would reiterate what I said the other day - ask him how much he would pay you. It's as good a way as any of starting the negotiation.
I can't see how past fee income is relevant in this matter, unless your current partner is prepared to enter into a long term non-compete agreement.
He's quite shrewd, and I think he would see through this tactic and put a high figure on my value. Furthermore he doesn't want to carry on in our line of business - he definitely wants out.I can't see how past fee income is relevant in this matter, unless your current partner is prepared to enter into a long term non-compete agreement.
rowley birkin said:
He's quite shrewd, and I think he would see through this tactic and put a high figure on my value. Furthermore he doesn't want to carry on in our line of business - he definitely wants out.
So if he puts a high value on you, say 'wow that's great thanks. A cheque will be fine'And use the money to set up your own website and pay for some key word bidding.
edited to add: if what you said above is true and the business would fail without you, then his bit really is worthless beyond net asset value.
Bill said:
Have you discussed his poor performance and lack of interest before this, or is this the first he's hearing of it?
There's little inherent value in the business so I'd approach from the standpoint of adjusting drawings to match income, and then looking to see if he will resign if that doesn't work out.
He is definitely going Bill, and he is well aware of his poor performance. The only question is can we agree on a buy-out figure (preferred option) as opposed to a full winding-up.There's little inherent value in the business so I'd approach from the standpoint of adjusting drawings to match income, and then looking to see if he will resign if that doesn't work out.
desolate said:
So if he puts a high value on you, say 'wow that's great thanks. A cheque will be fine'
And use the money to set up your own website and pay for some key word bidding.
edited to add: if what you said above is true and the business would fail without you, then his bit really is worthless beyond net asset value.
He won't give me a cheque, because he doesn't want to carry on. And use the money to set up your own website and pay for some key word bidding.
edited to add: if what you said above is true and the business would fail without you, then his bit really is worthless beyond net asset value.
The website has value to me but not to him - I need to buy his 50% interest in the website.
rowley birkin said:
He won't give me a cheque, because he doesn't want to carry on.
The website has value to me but not to him - I need to buy his 50% interest in the website.
So I think you have your answer - the business is worth nothing other than to you.The website has value to me but not to him - I need to buy his 50% interest in the website.
So the value is whatever you want it to be.
I would still ask him what he wants - then you know whether it's worth trying to reach a figure you will both be happy with or whether the energy would be best spent starting again.
If he thinks it's worth 100K and you think 5K - neither of you are ever going to reach a figure you a both happy with so why bother?
rowley birkin said:
He is definitely going Bill, and he is well aware of his poor performance. The only question is can we agree on a buy-out figure (preferred option) as opposed to a full winding-up.
Ah, ok. I'd say he's already had enough with you carrying the running costs for a while, he should be glad to get out with a share of the asset value imo.desolate said:
rowley birkin said:
He won't give me a cheque, because he doesn't want to carry on.
The website has value to me but not to him - I need to buy his 50% interest in the website.
So I think you have your answer - the business is worth nothing other than to you.The website has value to me but not to him - I need to buy his 50% interest in the website.
So the value is whatever you want it to be.
I would still ask him what he wants - then you know whether it's worth trying to reach a figure you will both be happy with or whether the energy would be best spent starting again.
If he thinks it's worth 100K and you think 5K - neither of you are ever going to reach a figure you a both happy with so why bother?
Bill said:
rowley birkin said:
He is definitely going Bill, and he is well aware of his poor performance. The only question is can we agree on a buy-out figure (preferred option) as opposed to a full winding-up.
Ah, ok. I'd say he's already had enough with you carrying the running costs for a while, he should be glad to get out with a share of the asset value imo.Rowley
I'd like to steer you back to what's fair and proper...
My business is M&A, so we're always working on business valuations...either to buy or sell... There are several ways one can value a business and each business sector tends to fall into a certain way or rule of thumb of doing things...
What is always common, especially after some years of trading is that the goodwill and ongoing business does have a value... You both got it to where it is now...
It makes no sense whatsoever to start over afresh if you have some momentum... Having survived 5 years you have done exceptionally well... I think 50% or so of businesses keel over before then...
As I don't know what sector you're in... I've had a quick look for some generic advice...
You can find this on UK Business Forums. This is attributed to Modus Legal
Since you don't have a partnership agreement, the default position is that your partnership is governed by the Partnership Act 1890 (check it out at www.statutelaw.gov.uk).
Basically, you give written notice of dissolution to the other partner. Once you have done so you shouldn't be taking on any new business but are still responsible to each other in dealing with existing but unfinished transactions. You are supposed to wind the partnership up ie notify suppliers and customers that you have ceased trading, get in all monies due, pay out all monies owed and share out what is left between you - there is a strict order for doing this set out in the Partnership Act 1890.
So far as carrying on working goes, if for example you and John were in partnership trading as 'JohnRight', you could separately or the next day be in partnership with Billy trading as 'Billyright'. But you would still be obliged to act properly in winding up JohnRight.
Or, if for example you wanted to continue trading under the existing partnership name, you would basically have to buy the other partner out.
You will need to do termination accounts for a dissolved partnership and a new partnership will need new accounts from day one.
Just to be clear, dissolving a partnership is terminating a partnership - once you have done that the partnership effectively no longer exists except as residue. Part of that residue would be the goodwill of the business which will have a value - therefore if you are going to continue trading under the same name etc I think you will effectively have to put some money into the pot to buy that goodwill from the partnership.
I think chatting with an accountant would also be helpful for you.
And it goes on......
I'd like to steer you back to what's fair and proper...
My business is M&A, so we're always working on business valuations...either to buy or sell... There are several ways one can value a business and each business sector tends to fall into a certain way or rule of thumb of doing things...
What is always common, especially after some years of trading is that the goodwill and ongoing business does have a value... You both got it to where it is now...
It makes no sense whatsoever to start over afresh if you have some momentum... Having survived 5 years you have done exceptionally well... I think 50% or so of businesses keel over before then...
As I don't know what sector you're in... I've had a quick look for some generic advice...
You can find this on UK Business Forums. This is attributed to Modus Legal
Since you don't have a partnership agreement, the default position is that your partnership is governed by the Partnership Act 1890 (check it out at www.statutelaw.gov.uk).
Basically, you give written notice of dissolution to the other partner. Once you have done so you shouldn't be taking on any new business but are still responsible to each other in dealing with existing but unfinished transactions. You are supposed to wind the partnership up ie notify suppliers and customers that you have ceased trading, get in all monies due, pay out all monies owed and share out what is left between you - there is a strict order for doing this set out in the Partnership Act 1890.
So far as carrying on working goes, if for example you and John were in partnership trading as 'JohnRight', you could separately or the next day be in partnership with Billy trading as 'Billyright'. But you would still be obliged to act properly in winding up JohnRight.
Or, if for example you wanted to continue trading under the existing partnership name, you would basically have to buy the other partner out.
You will need to do termination accounts for a dissolved partnership and a new partnership will need new accounts from day one.
Just to be clear, dissolving a partnership is terminating a partnership - once you have done that the partnership effectively no longer exists except as residue. Part of that residue would be the goodwill of the business which will have a value - therefore if you are going to continue trading under the same name etc I think you will effectively have to put some money into the pot to buy that goodwill from the partnership.
I think chatting with an accountant would also be helpful for you.
And it goes on......
desolate said:
AndrewCrown said:
Desolate... Chill... I certainly wasn't directing or commenting on your post...if it came across that way it was unintentional...(;
Smiley thing with a thumbs up. 
Andrew I still intend to avoid confrontation and to pay a fair price; desolate has helped me to quantify what that price should be. Big thanks to both of you.
AndrewCrown said:
Desolate... Chill... I certainly wasn't directing or commenting on your post...if it came across that way it was unintentional...(;
: scratchchin: Which rather leaves me...The OP seems to feel his partner hasn't been pulling his weight for some time, so how much of the good will does he deserve?
It's two blokes working out of an office. IME, having been in a similar situation, the goodwill isn't worth a huge amount and any value in the website relates to how much hassle it is to start up afresh.
Just to update this thread, my meeting with outgoing partner took place today but no final decision yet. He refused to suggest a figure for me to buy him out, placing the ball in my court, so I am e-mailing him a take-it-or-leave-it offer of £3.5k. If he declines then he gets nowt from me; I will then incur the additional hassle of setting up a new business, but at least I will be £3.5k better-off.
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