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Question about assets and partners leaving...

  • 09-06-2005 12:12pm
    #1
    Cianos
    Registered Users, Registered Users 2 Posts: 4,850 ✭✭✭


    If someone had a share in a company and was leaving that company (being asked to leave, or agreeing to leave), is that person entitled to the value of the companies assets? Supposing the company had something that was currently valued at €1000, but the price of which could very easily increase or decrease over time, if the person owned 20% of company before leaving would they be entitled to €200 because of that asset?
    Cheers


Comments

  • #2
    Nuttzz
    Registered Users, Registered Users 2 Posts: 3,784 ✭✭✭Nuttzz


    they would be entitled to 20% of the total valuation of the company, not just the assets. you accountant should be able to give you a valuation of their share, however you could make them an offer, there isnt much of a market for minority holdings in private limied companies.


  • #3
    De Rebel
    Registered Users, Registered Users 2 Posts: 1,109 ✭✭✭De Rebel


    Nuttzz wrote:
    they would be entitled to 20% of the total valuation of the company, not just the assets. you accountant should be able to give you a valuation of their share, however you could make them an offer, there isnt much of a market for minority holdings in private limied companies.

    Complicated question and not one that you will get a certain answer to based on the limited information you provide.

    Simplistically, the answer is probably some sort of yes, you should probably be entitled to 20% of the value of the company (which may be a very different thing to the value of the assets)

    But in most cases, there will be some sort of shareholder agreement that will determine the buy out value for minority shares - and this is where you need to look.


  • #4
    RainyDay
    Closed Accounts Posts: 6,925 ✭✭✭RainyDay


    Their employment by the company is generally a seperate matter to their shareholding of the company. They can retain their shareholding after their employment is terminated. If you want to get rid of them as a partner, you'll need to buy out their shareholding.


  • #5
    antoinolachtnai
    Registered Users, Registered Users 2 Posts: 9,815 ✭✭✭antoinolachtnai


    You shouldn't think you can get this guy out just on the basis of a valuation of the tangible assets alone. He just won't settle for that. He'd be crazy to, if the company has any sort of goodwill in the marketplace or intellectual property at all. On the other hand, any valuation needs to take into account liabilities as well as assets.

    On the other hand, you should try to find some way to get him out. For a young company, it's much better if all or almost all the shareholders are involved in the business in some way.

    If the firm is something with stable profitability, you should reckon on a valuation based on the 'enterprise value' of the firm. (Enterprise Value = EBITDA (earnings before interest, tax, depreciation, amortization) divided by 'weighted average cost of capital') What's the WACC in this case? You could write a book at that, but it's probably somewhere between 5 percent and 16 percent - the riskier the business, the higher the WACC -.

    You have two other practical options aside from buying the person out at a valuation he is agreeable to.

    1. Dilute him out. Further investment will be required in the firm (probably) and this will result in new shares being issued, and possibly existing management being reincentivized with share options which will also dilute him.

    2. Start again. You could move the business into a new vehicle, without your former partner.

    Things he can do to stop you doing this:

    He could potentially take a case for oppression of a majority interest. This involves going to the High Court. Not cheap.

    He could (and this is much more likely) injunct you against firing him and/or bring you to the Employment Appeals Tribunal. I've had the High Court thing done to companies I was a director of, twice. Not pleasant.

    Trip to solicitor is definitely in order. Try to be nice. Don't make things worse than they have to be.


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