My ageing partner is charging me a bomb to buy him out!

Hi Aunty B,
 
I’m hoping you can give me a little advice over an issue I have. I currently own 25% of a business that I have worked in for the last 14 years.

Three years ago I purchased 25% of the shares and we moved the business from Sydney to the Gold Coast.

During my time with the company I expanded its client base and became the major contributor to the sales revenue. Since moving the business to the Gold Coast I have managed to increase the business approximately 30% per year and with the start of the new financial year we are looking at currently a 38% increase on the previous period.
 
All this sounds great, but my problem is that I have an ageing partner who started the business 23 years ago and now that things are starting to fly along wants an exorbitant amount for me to buy more shares.

We have had two companies make offers which I thought very reasonable, only for the partner to advise them that he doesn’t think they can pay him enough to retire. I have prepared a buy/sell agreement with the only stipulation being that the business be independently valued. This was rejected and what was presented was a large figure, mentioned along with a five-year term with targets set for me (I have not signed this).

He now has advised me to keep the expenses to a minimum as he wants to take money from the company that sits in loan accounts against his name ($32,000 in the last two months) but with the growth we are experiencing this is becoming an issue. I asked for my funds ($7,500) to be transferred to me but was told that these amounts are only on paper and not to be taken out of the company. (This money has now been transferred.)
 
With no agreement and no control I am at my wits end. I am no longer a director and have interests in other businesses and could easily take my clients to the companies I control. Your thoughts would be appreciated.
 
I must add that he is a very prickly person to deal with. His manner is very abrupt and negotiation isn’t in his vocabulary.
 
Gold Coast 

Dear Gold Coast,

You put your finger on it. We did a great story the other day about the horde of private business owners who want to retire but are staying in their businesses driving everyone nuts. The reason? They are trying to get the market to pay them enough to retire rather than being realistic about what the market will pay for their businesses.

What your aging partner is expecting is this: instead of a good deal for you and him, whereby the business will continue, he in a nutshell wants go-away money. And lots of it!

And before he gets his go-away money he is going to help himself to the till. Now, one might say that he has every right to do so. But he is failing to recognise and appreciate the contribution you are making, which should yet again drive home to everyone the value of a great shareholders’ agreement and an employment arrangement with appropriate rewards for growing the business!

I put your scenario to several advisers. Lawyer James Omond from Omond & Co. says he would put an offer to the ageing 75% shareholder, that he buy out the minority 25% at the price offered by the two spurned companies.

If he thinks these prices are too low, he should not have a problem buying you out at that price.

If the majority owner refuses to do so, get it in writing. Then you have an audit trail showing a form of minority oppression. You can then use this as justification for taking your bat and ball and going to play elsewhere.

Although you will be leaving money in the company, you still have your shares, and can keep one eye on your investment. But you will save a mountain in legal fees and personal angst if you can just move on and build up a business that you will personally profit from, rather than providing the benefit for someone else.

Watch out though. Lawyer Peter Vitalie reminds us that taking clients can be tricky. Even though you are no longer a director, it would have a negative effect on your 25% shareholding.

It might also constitute a serious breach of employment duties, although the cost of legal fees to pursue a “minority shareholder action” will be more than it’s worth.

Good luck!
Your Aunty B

To read more Aunty B advice, click here.

Email your questions, problems and issues to auntyb@smartcompany.com.au right now!