Wanting to Remove Business Partner

Lapplec on 29/12/2015 - 19:58
Last edited 30/12/2015 - 07:21 by 1 other user

Summary of situation:

My dear husband entered into a business venture with someone he hardly knew. The venture is to open up a coffee shop as they are both passionate about the drink (I don't drink the stuff). Hubby business partner, let's call him Mr X is a barista working for someone else at the time. Mr X have no capital or assets whilst hubby does. Against the advise of our accountant, hubby wanted to provide Mr X with some ownership & awarded him 30% share of the company without Mr X putting in a single cent. No formal agreement had been drawn up.

Fast forward a number of months, Mr X has gone psycho on hubby which I will not go into specifics. The shop is still in fit-out stage & had not commence trading. Being the supportive wife, I had never been involved in any of the shop discussion / decisions. But as things have now head South, I am now taking control from hereon which hubby is happy for me take charge.

Hubby wants to be fair & compensate Mr X for his concept, design of space provided if he agree to resign as director of the company. In fact we have presented to Mr X 3 options:

Option 1 - pay him for his time designing the floor space & recommendation of equipment.
Option 2 - pay him 30% of company nett profit after 12 months of trading
If Mr X does not accept either Option 1 or 2, hubby will exercise his rights as 70% owner of the company to sell off all assets, pay his 70% share of debts & leave Mr X with nothing but 30% of the remaining debt. This is of course very ugly & ruthless which hubby is trying to avoid but have been recommended by a number of individuals. Personally Mr X deserve nothing as to me it is like rewarding bad behaviour.

Personal differences aside, I am trying to come up with a $ value should Mr X elect to proceed with option 1. Mr X is a barista with no experience in setting up any business let alone a coffee shop. The design & concept is all his own - hubby did not persist to have any input which in hindsight had created an egotistic monster who now thinks it is all his. Any suggestions hubby may have made whilst in planning & design stage was instantly dismissed by Mr X. Hubby just wants to open & start doing business so how the space looks & what brand of machinery they use is of no big deal to him. For those who works in design & have coordinated with builder, what do you think is a fair sum for someone of Mr X experience?

Welcome your thoughts & suggestions

Financial

Comments

  • spackbace on 29/12/2015 - 20:06
    +2

    Whatever wage a Barista would get (let's say $22/hr), multiplied by how many hours he's been working with you. Sounds to me like that's all he's worth.

    • applec on 29/12/2015 - 22:29

      Excellent advice. Will do the cals on that tonight.

  • holdenmg on 29/12/2015 - 20:09
    +6

    Option 1: See a Lawyer.
    Option 2: See Option 1.

  • [Deactivated] on 29/12/2015 - 20:45
    +3

    Take option 2: Pay him 30% of the company net profit after 12 month and get your accountant to make sure that as far as the books are concerned the company makes literally nothing in the first year.

    Then, pay him 30% of $0.00… Do it quickly before X realises what net profit is.

    • applec on 29/12/2015 - 22:37
      +1

      Yes that was the idea behind Option 2. I am giving him all 3 options for him to choose which one he wants to proceed with. Have a feeling he will go for option 1 as he & his girlfriend is strapped for cash.

      • [Deactivated] on 29/12/2015 - 22:38

        Why does he get a choice in this?
        Does he have controlling share in the company?
        Why do you care if he is strapped for cash? Sounds like a problem for Mr X

        I'm all for helping people out and being fair, but if he was a knob then don't worry about him.

        • applec on 29/12/2015 - 23:06
          +2

          Still don't want to end on a sour note. Being the psycho that he is who knows what he may do as he know where we live, etc - hubby words, not mine. And Mr X currently have stored at his house the supplies that had been purchased for the shop such as cutlery, oven, grinders, etc. Approx $10k worth of gear. He has until 1 Jan to bring them all back into the shop. If he doesn't I need to check with my solicitor whether that is considered as theft since the company purchased them & call the cops on him. The other factor is that the coffee industry is small & Mr X talks a fair bit. So trying to end on a positive note.

  • holdenmg on 29/12/2015 - 21:08
    +1

    You state that Mr X is a Barrista, so did he ever represent to you that he was a Shop Designer or did he just take on that role…

    Who owns the design & concept advanced by Mr X?
    (Is Mr X, licensing this to the Business) or is it an asset of the business?

    • applec on 29/12/2015 - 22:46

      No. Mr X had a vision of what his dream shop was going to look like. Since hubby did not have a vision he was happy to run with Mr X concept & ideas. But the design of hte space could have easily be discussed & drafted up by a designer / builder. At the end of the day there was only 20 sq meters of space to work with so options was fairly limited. The fit-out is the asset of the business.

      The trading name was also his dream shop name. Have stipulated that we will not be using the name - it means nothing to us. The logo designed, marketing materials & any other stationery already printed is free for him to keep as part of goodwill settlement.

      Following our previous comment, we have already sought legal advice & has been given the ok to proceed with either option presented to Mr X

  • adamren on 30/12/2015 - 12:28

    Option 2. Just make it look on the books nett is $0. Which is easy and understandable for first year. Just pay yourself more, the gains.

    Next time don't be so generous, write it down and read up on detecting psychopaths etc. They're just the worst.

  • applec on 30/12/2015 - 23:28

    Update: Mr X wants to buy hubby out. If he is not offering $500k plus 10 years of nett profit he can get stuffed.

  • GourmetFoodie on 31/12/2015 - 00:01

    Technically the business is worth nothing except its book value / net asset value. I would try to calculate that and then offer him 30% of that to buy out his share of the business. Alternatively don't put any maths behind it and just offer him x$ for the 30% share to get him out.

    If you don't want to out any more money on the table you could technically leave him there as a shareholder - given he is a minority owner, he will only get dividends if the majority shareholder chooses to pay them out. Your hubby could just keep all the profit in the business and refuse to pay a cent out.

    • applec on 31/12/2015 - 05:42
      +1

      That is true on your statement regarding minority shareholder. However it does not stop him going into the premises. At this stage he has $10k worth of gear plus the coffee machine (on lease) at his house which he is using as collateral. Even if the fit out complete this week & the council give the approval business is unable to operate as there is no hardware. And that we want him totally out of our lives

      We had a 3 hour meeting with our solicitor today. Unfortunately the constitution state that in order to resign a director, there has to be a vote by all directors. As hubby hold majority of shares he can vote him out without any further approval. But the General Meeting cannot be held earlier than 21 days of the notice. If he does not show up it gets adjourned to the next day up to 30 days! Then that's when it gets approved by default! So frustrating.

      Notice was posted today follow up by a scanned copy of the notice. He still don't get it responding he will be working out a fair price to buy hubby's 70% share with legal. And that any future corro is to be via his legal. WTF? Which part of "we are not interested in selling" does he not understand? And what lawyer is going to advise him on what is a fair price?

      • [Deactivated] on 31/12/2015 - 10:28

        Can you call the police? The company property does not belong to him, he has no legal right to the equipment.

        • applec on 31/12/2015 - 13:04

          No as he is co owner. Unless he is no longer a director it will not be considered as theft

      • spackbace on 31/12/2015 - 11:30

        There's a chance you may have to say goodbye to the stock he has at his place. Either he could sell it before he gets booted, or he could mess with it etc.

        Who has the receipts/tax invoices to the equipment? That's 1 of the main things, as coffee machines need ongoing maintenance and you need to ensure you can claim warranty on it when/if you need to.

        • applec on 31/12/2015 - 13:06

          The coffee machine is on lease. Does not want to get the lessor involved but looks like we have to. Tell them we want to cancel the lease & ask them to collect it. Mr X will have to return as it is not company property

  • gevidian on 31/12/2015 - 14:40
    +2

    The fair price is what both parties determine it to be based on expected revenue/profit which give an estimate of the business value. Most cafes tend to sell for about 0.5x revenue. A good lawyer could give Mr.X an estimate based on other cafes in the area that have sold or are for sale. If you expect 500k+10 years profits for your 70%, he could then expect in the region of $200k for his 30%.

    You have a bad accountant and a worse hubby. The 30% Mr.X share should have been tied against a $$ value (like a loan) that he would need to pay back out of his share of net profits over x years till the amount was paid off and then he actually owns his 30%. Sounds awfully stupid to hand over an outright free 30% ownership to someone you claim your hubby hardly knew.

    If I was Mr.X, I would feel that you are trying to squeeze me out for a pittance - option 1 and 2 sound quite miserable to buy out a 30% minority owner. Option 3 to sell off the assets (and leave the debt) could go badly if he got a decent lawyer who could argue that it was done just to close that business and restart under another name without compensating the minority shareholder. For example, you could setup an ABN and hubby could sell you the business for a dollar….and then you hand Mr.X 30 cents and tell him to begone. Hopefully your lawyer provides better advice than your accountant.

    I would suggest you wait for Mr.X to offer his fair price for your 70% and offer him a similar percentage/value for his 30%. This might be the least acrimonious solution based on the worry he is a psycho and knows where you live. You might feel bad rewarding the bad behavior but that is generally the price for doing thins all wrong to start with.

  • mskeggs on 03/01/2016 - 09:22
    +3

    There is a huge range of misinformation in this thread.
    You need to get some decent advice, probably from a solicitor, not an accountant.
    As you hold more than 50% of equity, you can vote to remove the partner as a director immediately.
    You will then have an investor entitled to 30% of the company's assets and profit.
    At this point, this may be negative, especially as you will likey have committed to a multi-year lease (consider also if you gave any personal guarantees tot he landlord).
    Many small businesses have what is called a shotgun clause. This is a written agreement that if either partner wishes to buy out the other, they must make an offer. The other partner then has the option to buy out the first for that amount. This removes the need to establish an accurate price, because a too low price will be countered, and a too high price accepted.

    I realise this is just posts on a web site, but some of the things you have been doing are detrimental to your case. By furthering discussions, offering lots of options, etc. you are giving your unwanted partner additional ammunition to challenge you in the courts. Also, the offer to buy you out is another red flag, as your refusal could be interpreted to show you value the business as higher than their offer. And they own 30% of the business!

    Please stop talking to the partner and talk to a lawyer.

    • applec on 04/01/2016 - 06:04

      Thanks you for your advices. We have stopped any further corro with Mr X other than making clear hubby is not interested in selling his shares. Our lawyer provided us with legal advice which we are following. Wheels are certainly in motion. With any luck Mr X may regard the lack of corro is as a result of us backing off as he has put in writing that he will be consulting a lawyer in establishing a fair price to buy us out.

      • gevidian on 05/01/2016 - 07:32

        Wishing you get a speedy and desired resolution to this issue.

Login or Join to leave a comment
Login Join