Family business buyout

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Penny4urthoughts
Posts: 1
Joined: Mon Apr 08, 2019 12:53 pm

Family business buyout

Post by Penny4urthoughts » Mon Apr 08, 2019 1:08 pm

Long time reader, had an account long ago but no idea what it was now. Need some help with a situation I’m dealing with.

Bought a business with family in 2017, I own 10%. Received a salary and periodically would receive dividend checks throughout the year. In December 2018, I let family know I wanted out and it’s understood that they will buy me out for what the gross revenue of the business was. Ex: if we brought in $500,000 in 2018, I’d receive $50,000 for my 10%.

Haven’t been bought out yet, and I’m no longer on the payroll since I am not actively working there.

My question is, since I told them last year I wanted out, am I only entitled to the money made in 2018, or 10% of whatever the company makes up until the point of my buyout?

Thanks

And as you may have guessed, this relationship is somewhat strained.

LFS1234
Posts: 109
Joined: Fri Feb 08, 2019 4:13 am

Re: Family business buyout

Post by LFS1234 » Tue Apr 09, 2019 4:50 am

You might find useful information by googling "minority shareholder rights"

Good luck

riverguy
Posts: 496
Joined: Sun May 23, 2010 10:33 pm

Re: Family business buyout

Post by riverguy » Tue Apr 09, 2019 5:57 am

Whatever is in writing.

smitcat
Posts: 4289
Joined: Mon Nov 07, 2016 10:51 am

Re: Family business buyout

Post by smitcat » Tue Apr 09, 2019 6:02 am

riverguy wrote:
Tue Apr 09, 2019 5:57 am
Whatever is in writing.
Exactly - whatever is in your partnership contracts.

StopIroningShirts
Posts: 76
Joined: Sat Nov 10, 2018 7:20 pm
Location: US - Currently in South Carolina
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Re: Family business buyout

Post by StopIroningShirts » Tue Apr 09, 2019 6:55 am

A few questions (I spent 15 years loaning money to entrepreneurs/privately held businesses)

- What set the value of the business at one time gross revenue? That's an interesting metric

- What type of corporation is it? Have you reviewed the corporate documents and does it have provisions related to partner buyouts? Usually the bylaws and articles of incorporation cover it.

If those are generic, they'll likely contain the standard language that the shareholders elect the board of directors by a 50% or more vote, then the board of directors appoints the officers who make the decisions in conjunction with the board. If more than 50% of the shareholders appoint a board you don't agree with, you're kind of stuck.

trustquestioner
Posts: 120
Joined: Sun Sep 03, 2017 6:50 pm

Re: Family business buyout

Post by trustquestioner » Tue Apr 09, 2019 7:11 am

Get what you can and get out. Being a minority shareholder in a private business is hell, especially if you’re not getting along with the majority owner(s). Gross revenue is a bizarre metric to set a buy out price, btw.

PS: exception to the above advice is a very valuable business, but what little information we have doesn’t suggest that.

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