Business Advice needed from unrelated 3rd party....

Discussion in 'Growing and Managing a Business' started by JKP, Feb 8, 2010.

  1. JKP

    JKP
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    Hi all, just joined and what a great business forum this looks to be! :) I searched for business advice on google as I need to get an unbiased 3rd party opinion regarding my business. I started a Limited business a year ago with 2 members of my family, I will call them X and Y. X and myself work on a daily basis for the business and it is our livelyhood, it was our business plan and idea. Y invested £5200 at the start of the business for a 8% share and has a separate day job and does not depend on the business for his livelyhood. Myself and X each own a 46% stake in the company and have since ploughed in some £20k of our own money. The company is going well, steadily growing and making a profit :D

    A month ago X was approached by a person in the same line of business as us who didn't want to be in the business anymore but had current business and contacts to get much more new business in. He approached X with a view to setting up a new company, a LLP, 50/50, where he gets the business through the door and X would deal with the business. The new business would run through our existing business but all overheads associated with it would be recharged to the new business. As the day to day business partner of X I have also been a party to the agreement and myself and X each have a 25%share in the new LLP and the guy bringing all the buiness to the table a 50% share.

    Just to note X is our new business man and will continue to get all his new business into the existing Limited company.

    Y is staing that he should have a share of the new LLP business as he invested in our orginal buiness. He says it is not fair for him not to have a % share of the new venture because we are operating it through a business he invested in. X and myself do not agree - this is a totally new venture and although it will operate through our existing business all costs will be recharged and therefore it will not affect the profitablity of the orginal business; the business Y invested in.

    I have spoken with my accountant and solicitor who agree with myself and X - but hey they would we're paying them!......so I wanted an unbiased 3rd party opinion on this and here I am......any advice/help would be very much appreciated - should Y have a % stake in the new LLP? The more I think about it all I can see it from both sides!.....oh and never go into business with family :rolleyes:

    Thanks for taking the time to read :) Janet
     
  2. Fergal

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    Welcome to Business Advice Forum Janet and thanks for posting your business questions. Like you, I can see both sides of this.

    In fairness to Y, I can understand that he feels entitled to a share of this new business. From what you say, it would appear that this new business owes it's existence to your current business where Y is a partner. You say that "The new business would run through our existing business but all overheads associated with it would be recharged to the new business". Although the overheads are being charged I would feel the fact that the busienss is being run through your existing business would entitle Y to a share of the new business profits. If both you and X are going to be spending time on the new business your existing business will in all probability suffer in some way.

    If I was in Y's shoes I would be looking for a share of the new business or at least some way to benefit from it. However, please note that it is difficult to give a full opinion when we don't know the full circumstances and there may be factors involved that I'm not aware of.

    Good luck with everything and I hope that you can all find a win win solution that benefits all parties involved.
     
  3. seanstevens

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    It is a tough one to give a clear response to. Looking at it from Y's perspective, even if everything will be recharged to the new company the feeling would be that less time and effort would be devoted to the old company so his investment has been downgraded as potentially less profit would be made in the long term. If he is looking for a % in the new company then lets face it the biggest % he should be hoping for is 4% (half of his % in the old company as you guys only have 50% of the new company). Is 4% worth losing a business partner over? If it is then stick to your guns and buy him out of his 8% share in your company, if you don't have the funds available, would the partner in the new business want to buy out his share in the old company?
     
  4. JKP

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    Thanks for your responses guys, both very useful.

    I had thought about buying him out of the exisitng business and might try to do this as he seems to want a lot of control over the business and myself and X for a relatively small stake of 8% - its becoming a problem! We don't feel we can take control of a business we have 92% share of without checking things with him 1st. I think we saw his £5200 investment as just an investment but he wants to be hands on for it. He doesn't know the business well and doesn't make a good job of it when he does 'try' to help.

    I do see your point also about 4% not really being worth all this effort but I think its the principle more than the money involved - why should we give away some of our deal that we have worked on very hard to make happen. Y has had no input, financially or otherwise. Actually our new business partner is paying for some set up costs, website, corporate stationery etc

    Myself and X are also looking at setting up other new ventures in the future which our existing business has meant the opportunities have arrisen for us, if we give in on this will we have to on all future deals??? He invested in our orginal business not myself and X's future earnings....we are going out and finding further opportunties for ourselves, isn't that just business?.....thats as I see it anyway. Maybe I'm wrong?

    And all that said, I'm still seeing both sides :confused:
     
  5. Fergal

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    Buying Y's share of the business sounds like a great idea, if you have the resources to do it and you don't need his advice or input into the business. Is this something that you have mentioned to him yet? Maybe he'd be delighted with the offer, because it would release some cash to him, that he could use for other purposes. As you say, it would free both yourself and X up to invest in other businesses and move forward with different projects, without having to consult with anyone else.

    By the way, having an odd number of business partners has its advantages. Whenever there is a disagreement you can go to a majority vote. Not something you can do, when there are two people with equal shares in the business.

    Did you put a partnership agreement in place when you originally set up the business? If you have a partnership agreement, you may want to check with it, to see if it provides for any of these eventualities.
     
  6. JKP

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    ......Have spoken to him about buying him out and he hasn't taken it very well - he has lots of surplus cash and doesn't need the £5200. He has taken it as myself and X are pushing him out. I don't know what to do about all this. I have now asked my Accountant and Solicitor for a written explination of why Y shouldn't be entitled to shares in the new venture but I fear this will just make him more angry about the situation. The business relationship has now broken down badly because of this situation.

    We didn't sign a partnership agreement when we formed the company - myself and X have A Shares and Y has B Shares - I don't know if this matters? My Accountants view on this is Y is a minority shreholder and is not entitled to shares in the new company, he gave an example that made sense to me - If you buy minority shares in say British Gas and then BG ventured into a new company you wouldn't be able to then claim part of that business.
     
  7. scifi

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    Hi!!. I am not giving any advice ..in fact it is just my opinion ..to clarify at first hand..!!
    Well you have a point here ...
    Since you think that it is totally new venture, person Y should not have any stake in it...Right...
    BUT the point of controversy here is that your operations of this new venture are using the infrastructure of your original business in which this guy Y had invested in the beginning.....
    So ideally he should get a part of the profit @ 8% of your both Combines i.e. around 4% stake in the new venture....

    The only way out of this deal is to make the operations of your new venture isolated from your startup original venture... Then use your new venture as a client of your original venture....
    this way both of your problems and issues will be settled....

    let me know your view point too on my opinion..
    :)
     
  8. Fergal

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    Is your accountant absolutely certain about that? If you owned 100% of BG and BG ventured into a new company, who would own BG's share of the new company? Would the same logic apply if you owned 1% of BG, or even 0.001%?
     
  9. JKP

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    Hi, Thanks for your thoughts. I think then like me you can see both sides. With regard to isolating the new venture from the old, I feel we are as we will be recharging alll costs involved in it to the new venture - if we weren't doing this I could see Y's argument clearly.

    The new venture is having a lot of its own infrastructure - website, software, corporate stationery etc which our new business partner is funding. By no means did Y pay for the infrasturcture of the old venture - £5200 went nowhere! Infact the new venture will be funding a peice of software costing £12,000 that the old venture will use. The 2 ventures are going to share 3 members of staff 50/50 with 50% cost in each business, which to me makes good business sense - not to have 6 members of staff just to suit Y.
     
  10. JKP

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    Obviously I can only take my accountant at his word - I do not have his knowledge but having worked with him for the last year he seems to give very good sound advice. I think if you own 100% of BG is a very different case to owning 1% of BG and the same applies here. My accountant has admitted that if Y was not a minority shareholder the outcome of this dispute would be different.
     
  11. scifi

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    Hi JKP..Thanks for your feedback

    I was just making a point that a new building built on the foundation of old building even if not entirely owes something to that foundation of old building....
    You have make it clear that you are doing your best to give your old business what it rightly deserves...but think
    Since both of the ventures are using the software ,so its natural that both the ventures should share cost.
    Since employees are going to do work for both the companies, its again natural that both ventures should share the cost....
    It doesn't matter whether Y paid for infrastructure or not but he was a partner when you opened up the old venture..thats count....

    I am not opposing you here...But bringing you fact on another side of the coin which according to me is justified....
    Thats all..!!:)
     

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