Business partner wants to sell, I don't!
Discussion
I've got a bit of a situation developing and am looking for thoughts in case there's anything I've not considered
I'm 47 and my business partner is 62. He wants to retire. We're 50/50 on everything, but for various reasons he is not and never was never a director or shareholder. This leaves a dilemma. He's talking about selling his half of the business.
I'm quite happy as things are, so am not massively favouring any of the outcomes, but as I see it they are
He sells to me- I'm not interested, all I can see is more work, more aggro and although I'd have more as a %age it could end up less in real terms
He sells to a third party- as above, but with potentially new friction
We both sell to a third party- it's a year or two early for me but probably my favoured option
Going nuclear and refusing him his half on the technicality isn't an option. So assuming the shares are split equally at some point down the line my understanding is we need a shareholders agreement including what should happen if one partner wants out, i.e. first option on buying the other out (and anything else?)
Do I/should I have any say over a potential new third party business partner? Can I block the sale, either his half or in full?
He's a better negotiator than me so if a third party gets involved can I have a clause where if I want to sell at a later date I get the same price as he did or along those lines?
Obviously there's a lot at play and this is all recent but he is keen to move asap so I want to be as prepared as possible. FWIW LtdCo is 7yrs, t/o this year will be £1.2m with profit of around £350k before we take any money out.
I've got a flat paid off and rented, a house with a small mortgage and without sounding a dick plenty tucked away which could pay that off and have enough to keep me for years or buy another property so money isn't an immediate concern. Naturally though I want to maximise the situation whatever the outcome.
First step is a meeting with our accountant but he's away so I'm just looking for any thoughts, advice or ideas from PH as I know many of you will have been in similar situations.
I'm 47 and my business partner is 62. He wants to retire. We're 50/50 on everything, but for various reasons he is not and never was never a director or shareholder. This leaves a dilemma. He's talking about selling his half of the business.
I'm quite happy as things are, so am not massively favouring any of the outcomes, but as I see it they are
He sells to me- I'm not interested, all I can see is more work, more aggro and although I'd have more as a %age it could end up less in real terms
He sells to a third party- as above, but with potentially new friction
We both sell to a third party- it's a year or two early for me but probably my favoured option
Going nuclear and refusing him his half on the technicality isn't an option. So assuming the shares are split equally at some point down the line my understanding is we need a shareholders agreement including what should happen if one partner wants out, i.e. first option on buying the other out (and anything else?)
Do I/should I have any say over a potential new third party business partner? Can I block the sale, either his half or in full?
He's a better negotiator than me so if a third party gets involved can I have a clause where if I want to sell at a later date I get the same price as he did or along those lines?
Obviously there's a lot at play and this is all recent but he is keen to move asap so I want to be as prepared as possible. FWIW LtdCo is 7yrs, t/o this year will be £1.2m with profit of around £350k before we take any money out.
I've got a flat paid off and rented, a house with a small mortgage and without sounding a dick plenty tucked away which could pay that off and have enough to keep me for years or buy another property so money isn't an immediate concern. Naturally though I want to maximise the situation whatever the outcome.
First step is a meeting with our accountant but he's away so I'm just looking for any thoughts, advice or ideas from PH as I know many of you will have been in similar situations.
technodup said:
he is not and never was never a director or shareholder.
As above, regardless of any agreement, unless he is a shareholder and registered as such at Companies House he does not own any of the business and therefore cannot sell any of it.
If he wishes to retire then he retires. If you and he agree to some parting-payment, that would be an informal agreement unless there is provision for such in any employment contract that may exist.
But let's assume you've got your mords wuddled and he is a shareholder......
The first port of call would be the shareholder agreement or articles of association that would set out the process for such a scenario. But in keeping with every thread of this nature, I'm guessing no such agreement exists.
Ordinarily, such an agreement would not enable him to sell shares to anyone else without your consent. Without one, he can sell to who he likes without any recourse to you. Whether anyone would buy them on this basis is another matter.
If discussion and negotiation prove fruitless, the two options you have are to sell the entirety of the company or wind it up.
From what you've said, it sounds to me like you have an eye on an exit yourself in the not too distant future. If it were me, I'd buy him out and set about fattening the company up for an early exist which you would then be the sole beneficiary off. Even if you are worse off month to month, the end result will be better for you.
But all of this is moot if he doesn't own any of the company.
jeremyc said:
If he is not a shareholder then he doesn't have any part of the business to sell.
What kind of agreement do you have that says he has half of the business as a partner? Who owns the shares in the limited company?
I'm guessing he is simply an employee - is that correct?
No, we started the business together and have always been equal. He had/has other businesses so at the start he basically wanted to be arms length in case it failed so he's never been official, it's verbal/trust only. That suited him at the time, but obviously doesn't now. I can't/won't be difficult in that sense i.e. if we now need to officially designate shares to allow him to move on so be it, I'm not going to shaft him. BUT as the situation favoured him early on if I can have it favouring me now I want to be able to use it to my advantage. What kind of agreement do you have that says he has half of the business as a partner? Who owns the shares in the limited company?
I'm guessing he is simply an employee - is that correct?
This is going to be messy.
I suggest you take some professional advice to work out the options and potential tax consequences.
In my opinion I’d buy him out (negotiate a figure without messing with the share ownership) over several years using the profits from the business to pay him. This means you have full control over what happens next. You would need a legal agreement in place to avoid future issues.
I suggest you take some professional advice to work out the options and potential tax consequences.
In my opinion I’d buy him out (negotiate a figure without messing with the share ownership) over several years using the profits from the business to pay him. This means you have full control over what happens next. You would need a legal agreement in place to avoid future issues.
Phil. said:
This is going to be messy. I suggest you take some professional advice to work out the options and potential tax consequences.
Definitely.There are endless potential possibilities and complications. As someone else has already questioned, how do you and he get paid by this business? And when you talk of "buying him out" what do you think you would be buying?
Possibilities include,
1. He is a director and shareholder but the paperwork was never properly completed, or
2. It's actually a partnership between your (100% owned) limited company and he himself (in person).
Can you just clearly state what the current legal position is? Wanting to treat everyone fairly and having a gentleman's agreement in place is fine, but before anyone can offer any suggestions, you've got to explain the context ... i.e. the current legal structure of the business.
Is the business a limited liability company? Are you the current single shareholder and the single director of the company? Is your "partner" legally just an employee? Or have you been employing him as a contractor? Or ... ?
Is the business a limited liability company? Are you the current single shareholder and the single director of the company? Is your "partner" legally just an employee? Or have you been employing him as a contractor? Or ... ?
Wow: this is a tax mess.
He’s gonna have to eat the paye 45% loss on this, not you, if the reason for not taking shares was to benefit him.
I think getting him growth shares now with a 2 yr vest may be your play.
You need tax advice on this. It may create the driver you wanted to not sell for a couple years but you’ll need to sort share options and so on NOW to get the clocks ticking
Good luck - this will be a mess.
He’s gonna have to eat the paye 45% loss on this, not you, if the reason for not taking shares was to benefit him.
I think getting him growth shares now with a 2 yr vest may be your play.
You need tax advice on this. It may create the driver you wanted to not sell for a couple years but you’ll need to sort share options and so on NOW to get the clocks ticking
Good luck - this will be a mess.
Sounds complicated but you're in the driving seat as legally he owns nothing. You can't just gift him the shares as it creates a tax liability.
Depends how violent he can be I suppose as to what you end up doing
Easiest way would be to sell up and give him half the proceeds or wind up the business and do the same. Up to him how he accounts personally for the windfall.
Depends how violent he can be I suppose as to what you end up doing
Easiest way would be to sell up and give him half the proceeds or wind up the business and do the same. Up to him how he accounts personally for the windfall.
Limited company, I'm sole director and shareholder. His side is mostly sales and marketing so his preexisting marketing business invoices mine/ours as and when, with VAT charged as normal. I get paid salary and dividends, although in reality its all paid at once as I don't need the monthly money. Accountant has been fine with it.
As I said I'm not going to shaft him on the ownership bit, if I need to 'give' him 50% to allow him to sell it again so be it, that's always been the understanding, unconventional/wrong as it may be. If to do that we need a shareholders agreement that's where my questions start e.g. do I have (or can I negotiate) a veto on a third party?
I understand it is messy but that might not be the worst thing for me at this stage.
As I said I'm not going to shaft him on the ownership bit, if I need to 'give' him 50% to allow him to sell it again so be it, that's always been the understanding, unconventional/wrong as it may be. If to do that we need a shareholders agreement that's where my questions start e.g. do I have (or can I negotiate) a veto on a third party?
I understand it is messy but that might not be the worst thing for me at this stage.
His marketing business could invoice you a management fee or similar which he's happy with, assuming the business has the money to pay it.
If he invoices enough for him to be happy to walk away then that's that sorted. Although you've said you don't want to run it on your own it does give you the opportunity then to sell some of the shareholding.
If he invoices enough for him to be happy to walk away then that's that sorted. Although you've said you don't want to run it on your own it does give you the opportunity then to sell some of the shareholding.
Phil. said:
This is going to be messy.
I suggest you take some professional advice to work out the options and potential tax consequences.
In my opinion I d buy him out (negotiate a figure without messing with the share ownership) over several years using the profits from the business to pay him. This means you have full control over what happens next. You would need a legal agreement in place to avoid future issues.
Agree that it is all going to be a bit messy. Sadly not uncommon and I have seen it a few times where people who are the best of friends and/or family end up falling out all because there was never a formal agreement in place. The professionals end up making a lot of money out of resolving the situation.I suggest you take some professional advice to work out the options and potential tax consequences.
In my opinion I d buy him out (negotiate a figure without messing with the share ownership) over several years using the profits from the business to pay him. This means you have full control over what happens next. You would need a legal agreement in place to avoid future issues.
The sale to third party now would probably be the best option and the other party will have to take the hit of sorting out his tax situation.
Giving him shares now and a shareholders agreement is not really an option since that will also be messy tax wise.
The advice above is sound if the OP decides he wants to run the business on his own although if I have read it correctly, he doesn’t want to. So the OP could sell the business and then make what will almost classed as a goodwill payment to the other party in the most tax efficient way.
Professional advice from accountant and lawyer required here.
Potentially very messy, but it doesn't have to be. It sounds like there is a high degree of trust there which is a good starting point. If you are looking to sell in a year or two anyway then sell now is your answer. It could easily take that long to find a buyer, handover etc anyway. Even if you were to buy him our or bring in a new partner that's the only way you would arrive at a fair value.
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