How to work out 50% shares in the company?

My partner & I own 50:50 of shares in the company & he decided to leave & wanted to be brought out

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Hi all, my partner & I are the two directors in the company. We both own 50:50 of the shares. He decided to leave the company as a whole & wanted me to pay for what he has invested in cash. Based on my understanding, the value of his share is based on the value of the company, not the amount of money he invested. The value of the company = the assets (equipments) & the profit in the bank account. Also value of equipments depreciates over time. The question is how to work out 50% share in the company? Unfortunately, it's a small business hence it wouldn't be sensible to seek for professional input but if it's necessary, how much would the cost be? Also there's no agreement in place. Any input would be helpful. Thanks in advance!

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By zebaa
25th Jan 2020 11:19

Start from the balance sheet, then do lots of talking. Is there & can there be profit ? Can the business run with the one person left ? If you liquidate the company - that's to say the talking stops - what do you get ? Sometimes, pulling the plug in a business results in less money for the owners. You have to think your objectives out. How much do you want the business to continue ? What are you willing to pay for that ? What do you do if the business stops ? In the end talking is the only way you both have a chance at satisfaction, but it does take the two of you. Good luck.

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By Accountant A
25th Jan 2020 11:54

Quote:

He decided to leave the company as a whole & wanted me to pay for what he has invested in cash.

If he is happy for you to pay him out what he invested and you are happy to pay that, go for it.

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RLI
By lionofludesch
25th Jan 2020 11:57

If you want to avoid fees, make some effort to come to an agreement. Look at how far you are apart and, if that's less than the accountancy fee, split the difference.

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By philrob
25th Jan 2020 16:49

Price is part of the agreement. The value depends on the assets of the business; the liabilities of the business (e.g. are there any warranties/guarantees that customers might call upon) and the future prospects of the business (are they good? can you realise them without your partner? Who causes sales?, who does the work that gives happy customers? Is the market about to be wiped out (want to buy a plastic straw making company anyone...).

Timing of any payment is another element. If there are warranties/risks then some deferred payment may be appropriate.

What to each of you can and can't do after 'the divorce' is another consideration. Can your partner carry on in the same trade competing with you? Can he say nasty things about you to prospective customers? Sale and Purchase agreements usually include clauses agreeing who can say what, whether there are any restrictions on trade and, if so, how long they last.

A web search on 'what is in a sale and purchase agreement' will give you some things to consider/discuss with your partner.

If possible agree a 'heads of terms' with your partner making sure it is subject to getting advice and contract.

There is a bit of chicken and egg here - you might need advice to agree a price or have a price agreed in principle to check that it is fair.

Only you can decide what the fair value for those shares is however it is worth getting your valuation and the thinking behind it sanity checked. I would strongly urge you to get some advice from your accountant or from someone they recommend. The discussion may take an hour or two and cost a few hundred pounds but it could be worth the cost for peace of mind and/or not shooting yourself in the foot.

Once you have agreed the valuation, the timing of payments and any restrictions then you might need a few hours of a lawyer to knock up an agreement (the better the list of things you have agreed in principle with your partner in advance the quicker and easier it will be).

Good luck.

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By David Heaton
28th Jan 2020 12:31

Have you checked what your Articles of Association say about the question, if anything? Off-the-peg articles are probably silent, but it depends where you got them from. Presumably you didn't have a shareholders' agreement that governs what should happen?

You should also look into whether it's better for the company to buy back the 50% and cancel the shares, or for you to find the money to buy the shares personally.

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