I have a client that has a friend in need of some advice. He is a director (A) and 50% shareholder of a company, the only other director (B) is also a 50% shareholder. Apparently B is causing problems as his work is reliable, he upsets staff, doesn't pull his weight etc. B has suffered some health problems and appears keen to sell his shares to A, but he has requested £500k to be bought out. I have only had a brief chat with A and seen the abbreviated accounts, but the valuation does seem excessive. Another problem is that the current accountant is an old friend of B. So A does not trust him, or agree with the valuation.
A is getting tired of B's behaviour and wants to just walk away, but there is around £80k of equipment and £250k cash in the company.
I would rather stay out of this, but my client is sure that A will want me to be his accountant once he has either taken over the company, or started a new one.
I want to suggest to A the easiest, cheapest and quickest solution to resolve this (i.e. not winding up or an expensive legal dispute).
I was thinking to first advise A to get a third party professional valuer to prove an accurate valuation of the company and if the valuation is a bit steep advise the directors to go through a mediation process (specialist accountant of commercial lawyer) as I assume this will not be prohibitively expensive.
Has anyone else had a similar experience and have any suggestions?
Replies (2)
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Not enough info
Lots of questions, not enough facts.
What else is on the balance sheet? With £250k cash and £80k assets there is the potential for a reasonably high valuation even disregarding any goodwill. What's the overall balance sheet value for starters. It's not possible to get an idea of valuation without seeing the full accounts, for all we know they could have made £500k profit and taken £500k dividends.
Is Director A able to start up again on his own? What would the costs be? What would he be willing to pay simply to keep the business going (and therefore effectively the goodwill).
Director B is actually in quite a weak position as it is rare for an external investor to buy 50% of a small business. There's plenty of room for negotiation.
My advice......get the full accounts, adjust to net maintainable earnings, pick out a reasonable multiplier (number of years you want to get your money back) and see what the figures show. An independent accountant would definitely be needed if a price can't be agreed upon initially. I'm a fan of mediation, although it can be lengthy, but if Director A won't pay a figure that Director B won't budge from then it's time to close down the business and for Director A to start looking for a way to set up on his own.