Been running a small custom furniture shop with my co-owner for about 6 years. They're moving overseas for family reasons and can't be involved day-to-day anymore, but they want to keep their 40% stake. I'm trying to figure out if that's sustainable or if I should push for a buyout. Anyone been through this?
Co-ownership
My co-owner is leaving but wants to keep their ownership percentage
So they want the upside without the work. Sounds like every investor ever. What do they actually brng to the table if they're not there?
i mean, technically they own the shares. Unless your operating agreement says otherwise, they can keep them. The question is whether YOU can live with it. Are you planning to pay yourself a salary for doing all the work? Because that's step one.
No formal operating agreement, which I'm now realizing was a huge mistake. We just have a basic partnership filing. I do take a salary but it's modest.
Oof. No operating agreement. That's gonna make this a lot messier.
This is exactly why I lurk on this forum. Reminds me to finally update my own partnership docs. Thanks for the cautionary tale, OP. Sorry though, that's rough.
Everyone's saying buyout but has anyone considered a silent partner arrangement with agreed-upon distributions? Like, they get 40% of profits but zero decision-making and you get a buyout option down the line. Could be a middle ground.
GrumpyOtter has a point but good luck getting a departing partner to agree to zero decision-making when they hold 40%. That's a negotiation, not a given.
Need way more info. What's the business worth? Are they planning to stay involved in any capacity? Do they have a timeline? Honestly if they're moving overseas, distributing profits internationally could could be a nightmare tax-wise. Get an accountant before you get a lawyer.
They've said they want to stay involved 'strategically' but realistically that means a monthly phone call and wanting to veto big decisions. Worth maybe 80-100k based on last year's revenue. I don't have 40k sitting around to buy them out anyway.
So no buyout money, no operating agreement, and a partner who wants veto power from another timezone. Best of luck with all that.
Seller financing on the buyout could work. You pay them over time out of distributions they would've gotten anyway. They get a guaranteed payout, you get full control. Just have to structure it so it doesn't kill your cash flow.
Wait, 80-100k valuation seems low for 6 years and the kind of margins custom furniture usually pulls. Are you sure that's accurate? Might be underselling yourself and that changes the negotiation.
DieselDan's seller financing idea is solid. But you need to get the number right first. Honestly at this point you're asking internet strangers to do the job of a partnership lawyer. At minimum get a consultation.