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BartEsq
BartEsq, Researcher
Category: Business Law
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Experience:  Juris Doctor
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(I asked this question yesterday and received an answer. I

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(I asked this question yesterday and received an answer. I want one more just for due diligence. We are friends and I want to show that I am doing my part to be fair) Two people founded a small business and agreed to be 50/50. They didn't have a partnership agreement. A few months pass and the company Gross Sales are about $2900. One partner is doing 90% of the work. The other provided most of the initial startup cost which was $450.00 The company makes all of their money from their website. The partner who made the initial capital investment is going to leave the company and is asking for a buyout. He is owed appox $500 in expenses. There are no tangible assets besides a $100 printer. I offered him $1000.00 to cover expenses and his initial capital investment. This is what he emailed me (he is counting his capital investment as an expense): "You know know and I know companies sell for 3 to 5 times their net value. In the last two months, we have sold close to $1000 each month. This is a great company in which both parties have built. You offered me $1000 for everything. Are you trying to cheat me? I know you better than that and that is not a fair offer. You told me you would be fair and $1000 does not even cover my expenses. Here is what I am thinking: 1) The total expenses equal $1,187.18, in which, I have all the necessary receipts to prove legally. 2) I am not trying to gouge anyone's eyes and ask for 3-5K, but I have come up with a number of $1,187.18 + $1,500 for a grand total of $2,687.18 to sell out my share of the company." What would be fair?  I could easily dissolve the company and start another one but I am trying to be fair.

bart0358 :

To be fair, you should split tilt the total earnings 50-50. Just because you did not have a partnership in writing, the state will apply one to you by default. If you both put in the same amount work I would say to pay the start up expenses and then split the profits. But since you brought the labor and he brought the start up capital, split the earnings 50-50. Then it would be in your best interest to dissolve the partnership and start your own. If I were in your shoes and my partner approached me in the sense of buying him out I think I would laugh.

bart0358 :

An informal partnership will not have the same type of value he is thinking with buying businesses for three times their worth. This is only for successful businesses with promised profits in the future. I'm not trying to belittle your business but at this point with only having $3000 profit, neither one of y'all would be in a position to even go to court and fight it out. It would cost you at least three of $500 just to get in small claims court.

bart0358 :

Worst-case scenario, dissolve and start your own formal business entity.

bart0358 :

I hope this helps, please remember to accept if my answer was useful psyching get credit for my work.

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