When Business Partners Split, Who Gets What?
Going into business together is the easy part. But what happens when, a few years down the track, one of you wants out?
We’ve recently seen this exact situation more than once. Two business partners, 50/50 ownership, and no agreement about what happens if they decide to part ways.
Suddenly, some very difficult questions need answers: Who buys who out? What is the business worth? And what happens if you simply can’t agree?
In this short video, I explain one thing you can put in place before there’s a problem that can save a lot of time, money and stress later.
If you own a business with someone else, this advice could save you in the long run.
Working with you,
Ross Millen & The Millens Team
Ross Millen:
Sometimes things come in ones or twos or threes, but something we've seen lately a couple of times is a situation where two people have formed a business, they're the two directors, they own 50% of the shares each, and then two or three years down the track, you know what? They don't want to be in business together anymore, but they don't have a shareholder's agreement. So probably for quite some time I've been saying, if you're setting up any sort of company, always have a shareholder's agreement. Why? Because no one knew they wanted to split up, but no one knew who could buy who out. How would we set the price? What were the terms? What was the process that they had to go through? If you have a shareholder's agreement, you can settle that out in advance. You can say, for instance, one person can give the other a notice and say, "We're going to bring it to an end now."
And then you might say in the first year or two, or maybe even three years, you just get back whatever money you put in at the start because the business hasn't developed or increased in value. Or you can say that based on financial performance in the past, you'll take an average of the profit, if there's been a profit, and multiply it by a certain multiple, which you can agree in advance, or you can arrange for the appointment of an independent valuer. Anyway, whatever you decide, we can draft the document for you. But then you'll know going into the business that if it doesn't quite work out, you know the process and the price to bring it all to an end. So remember, I'm Ross Millen at Millens. Contact me or anyone else at the Millens team to help you with your shareholder's agreement.