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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 38303
Experience:  Run my own successful business/contract law practice.
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co-own a company to where my percentage of ownership is 49%

Customer Question

co-own a company to where my percentage of ownership is 49% and the other owner has a majority 51%. He has put in around $15,000 of equity into the business, whereas i have put in around $5-7000. Upon the inception of the business we were both working around the same number of hours for probably around 3 months. After a huge backbone of the business never came into fruition, my business partner completely stopped working. Now I have completely grown the business by making contacts and continued work. So, now that the growth has come and it seems like there is money to be had my partner wants more involvement. I have been putting hundreds of thousands of hours into this business and I would like to know if my countless hours of work and building the company mean anything legally or if it would count as any sort of equity towards my share of the company? And if I'd like to buy him out what options I might have (if he's still owed around $5-6000)?
Submitted: 4 years ago.
Category: Business Law
Expert:  Dimitry K., Esq. replied 4 years ago.
Technically both of you invested not just money but "sweat equity", that is, labor, into the business. However if you did not designate salaries based on labor, regardless of what labor you placed into the business, the profits that come out are split 49/51. You can take those hours and attempt to calculate what additional value you have brought into the business, but if the agreement is silent to evaluation, it will be hard for you to demand a higher portion.

Yes, you can buy him out by re-evaluating both his debt and his value of the business (if the business is making money, it is very unlikely that he will simply agree to be bought out for his original investment).

Sincerely,

Dimitry Alexander Kaplun, Esq.
Customer: replied 4 years ago.
So, even if I have brought all of the business into the company, and worked thousands of more hours; and he basically took off for about 8-9 months (during the growth of the company), will that hold up legally? I mean if I had not bent over backwards for the past year and a half there would be no business right now.

Also, what if there was never a partnership agreement filled out?
Expert:  Dimitry K., Esq. replied 4 years ago.
Yes, it will most likely hold up, because the agreement (or lack of it) is silent on actual partner participation in the business, and without words to the contrary, the courts may decide that his investment in the company was going to be purely financial while you would be the operations and management.

If there was no partnership agreement, then the state fills in the requirements as they are under statute in your state.

Sincerely,

Dimitry Alexander Kaplun, Esq.
Customer: replied 4 years ago.
So if his initial investment was $16,000 and we are now in the process of the buyout; would he be entitled to get this back plus money or what is the best process of coming up with a satisfactory number?
Expert:  Dimitry K., Esq. replied 4 years ago.
That really is up to the both of you. You can try to buy him out for his initial investment, but he may request a portion of the profits as well. You can both agree to hire a forensic accountant to help you make a fair and reasonable estimate of the value of the business.

Sincerely,

Dimitry Alexander Kaplun, Esq.

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