# Selling my share to fellow director



## pat2468 (29 May 2012)

Hi,
I have been a 50% shareholder and am a full time employee in a business. 
I now want to move on. 

How do i 

1. Get the company valued so i can agree terms with my co-director for her to buy out
2. If my co-director in not interested, what are my options?

Co-director also full time and we have employees. 
Company will make a small profit this year, last three year break even. 

my gaol is to get out of the business, but as best i can ensure the businees remains. 

Any advise would be great.


----------



## mandelbrot (29 May 2012)

Is there a shareholders' agreement?


----------



## pat2468 (29 May 2012)

No. It was discussed but nothing was ever put in place.


----------



## Importer (29 May 2012)

It seems you have three choices

1) Sell your 50% to the other 50% shareholder
2) Sell your 50% to a third party
3) Retain your 50% shareholding but discontinue working in the business.

Regarding the valuation - A small business that is only breaking-even is unlikely to be worth very much. As a minimum you should try to get 50% of the balance sheet value as per the last accounts plus 50% of any perceived goodwill.


----------



## milly123 (29 May 2012)

Hi there,

Sorry for hijacking but i was going to post a similar question, but can I ask you Importer, what you mean by balance sheet value and goodwill - are you referring to retained earnings ? Thank you.


----------



## Importer (29 May 2012)

Yes, Retained earnings + share equity is essentially the owners equity or "balance sheet value"


----------



## milly123 (29 May 2012)

Thank you.


----------



## Importer (29 May 2012)

Goodwill is a more complex concept. It is an intangible asset of a business.
It is the value that someone might agree to purchase your business for, over and above the value of the business assets.


----------



## pat2468 (29 May 2012)

Option 1. Is my prefered option. 
Where or who do i get to negociate this deal between us. Do we use our accoutants or is there a specailised person?
There is funds within the company and a good deal of buiness on the books.


----------



## penury (29 May 2012)

+1 to everything that importer has responded with.

To add, if you are serious about doing this - and on the basis that you have no formal shareholders agreement, it might be best to consult a lawyer as well as an accountant.

You can inform or discuss with your partner that you are going to do this and that you would like to draw up an agreement to sign over over the share to them.

Doing that - would all hell may brake loose, or do you think your partner would be OK formalizing an agreement for the sale of shares to them or a third party. 

Does your partner have the money to buy the shares, if not have you considered an alternative approach - is there someone you know would buy the shares, possibly one or more of your employees?

Moving to the next stage - after you have decided what the value is in your mind - you need to discuss and decide between you and your partner what the value of the shares are worth, that is fair and equitable.

Generally a small business started between two people where they each put an equal amount of money in - *this may be *the limit of what your shares would be worth today given the fact that the business is not making a lot of money. 

Is the business net profitable after all other costs? - make sure you do not confuse gross revenue to net revenue.

It also depends on any assets that are present at the date that is chosen to sell your shares over, such as the net cash balance, inventory, any equipment at book value or any goodwill - such as a client base or any ongoing reoccurring revenue income.

Somewhere there must be bank statements, income and outgoing ledgers or spreadsheets, taxes paid, utility bills that shows this as an established business.

A general comment for anyone else looking at this post - If you have been running a sideline business out of your own homes with little to show in the way of a formal business and without business records or bank statements (similar to a sole propriety business operation), then you may have a sticky situation with regard to value. 

On that point I'm thinking something such as an ebay type buy and sell trading business, a service business or something that does not require inventory or equipment such as a software or consulting business.

Ask yourself - are the shares really worth anything, or if there is anything of any value currently or ongoing.

What if either you or your partner simply walked away today - would there be any tangible value, or would the person left running the business be left with value or debt

Trust this helps and good luck


----------



## Nige (29 May 2012)

It doesn't sound as if there is much, if any, value in your shares.

However, if your co-shareholder doesn't want to buy you out, it might be an option for the company to buy back your shares (provided it has the reserves).


----------



## pat2468 (29 May 2012)

The business will return to profitability this year, would expect 5% net. There is funds in the business of €80k and the client base is valuable. 

I am leaving the business for personal reason and want to be far to the co-director and fellow employees. The business is using a good accounting firm and we deal with a principal there. Should i ask them to value the business, i dont want to ask them if it some kind of conflict and its important the we both can agree on the valuation. I coordinate most of the account with our internal accounts person and therefore my input must be verified.


----------



## mandelbrot (29 May 2012)

In the scenario you're outlining it would appear that a buyback of shares by the company might be the best option, if the cash is available to do so. If you've got a decent accountant you should sit down with them and your co-director, get them to value the business (this will need to be done whatever option you choose), and and advise on a way to get things done to the satisfaction of all involved.


----------



## penury (29 May 2012)

+1 to what Mandelbrot posted above



pat2468 said:


> The business is using a good accounting firm and we deal with a principal there.
> 
> *Should i ask them to value the business, i dont want to ask them if it some kind of conflict and its important the we both can agree on the valuation*.



the answer is yes. An impartial 3rd party should do this and at some point a lawyer should be involved.

First and foremost - I suggest that you talk to your partner about wanting out and that you would like them to buy the shares ... I would suggest also that you don't try anything that would get your partner upset or try to do this behind their back

It is important that he/she agrees to go along with the valuation as well as to buy back the shares.

Not knowing the circumstances and based purely on the OP - *The approach that I would take*, this is not for you to go do or should do -  but thinking out loud if it was me - something along the lines as follows ...  If your partner is not in agreement, consider getting the valuation done at your cost - then contact a lawyer to have them draw up an offer or letter of intent to sell the shares to the existing partner with the proviso 30 day acceptance otherwise the offer would be to sell the shares to someone else


----------



## Spidey (30 Aug 2012)

*Share value*

Hi, what if company has a negative shareholding fund based on bad debt this year... But previous in profit. Company trading say 10 years... Would there be 0 value.or a value to be agreed on goodwill....


----------



## Bedlam (24 Apr 2013)

Hi 

Just wondering on having read this does anyone know what one should expect to pay in Legal Fees to have this type of transaction completed by a Solicitor?

Thanks

Bedlam


----------

