How should profits earned be divided between business partners when one leaves the business?
I'm a 50% partner in an LLC. My partner is moving out of state because his spouse got a Job offer they could not refuse. If he and I don't come to an agreement, can he legally take 50% profits until we do? We own a successful personal training facility. We're closing in on $1 million in sales every year and he thinks offering me $50,000 is a good deal… So I don't see this moving too quickly, any thoughts?
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It depends on how the partnership agreement was written, You need an attorney. He does own 50%. However since he is no longer working at the partnership he deserves no salary, benefits and reimbursements. You on the other hand you should get a raise since you are now running the business. and could take on all or part of his duties.
How much your business is worth depends on the real profitability (eliminating personal & unusual write offs) and the multiple of the profits you net.
Yes you can get funding to buy out your partner especially if you are profitable.
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The answer is in the original Contract Agreement. Read the "Fine Print." According to the story above, you stated that you are a 50% partner in an LLC. Therefore, the answer is that when the partnership agreement comes to an end, according to my maths, each partner gets 50% - you get your 50% and he gets his 50%. Now if you are smart and has been doing your homework, you can win it all. Write to me for more details.
In general, working partners take a larger share then sleeping partners. If both partners retired, the management company who may be hired to run the business would be paid a sum too. Thus the person "working" should be receiving their fair share of the work / time they put in as opposed to the partner not adding value / contributing in the day to day operations / expansion of business / strategy etc.
Success requires sacrifice, time, effort. Without these, the "sleeping" partner should expect less. Logically. A percentage needs to be agreed upon, not an amount. This incentivizes the "working" partner to produce and grow the business. This should make sense to both partners.
The real question here is "what are your partners shares worth?" I would recommend you hire a Certified Business Valuator (CBV) to calculate an appropriate value for your partner's shares. The CBV can provide details regarding all the determinants used to calculate the share value.
I would also recommend you hire a lawyer for appropriate legal consultation.
The other points already made are appropriate. Can your partner continue to promote the business? Is there an opportunity to open a second location? Does your partner want to exit the business? All these issues, and others, must be considered before making an appropriate offer.
I believe as long as his name is on the legal paper work he can. He is still a partner until it's changed. It also depends what clauses were instituted into the legal contract. If its a straight 50/50, then it should be an easier deal; but if their is a clause that if one of you break the contract their may be a fee for doing so that goes to the other person. If you both agree then it would be easier, other than the money you have to spend on a lawyer.
Is it possible to go to the Bank and get funding to buy him out? Do you have an interested party to purchase his share? The next alternative is if he can do his duties and help run the business from another location and remain a partner? If so why not try that.
If the operating agreement says 50/50, then yes you may. The only other equitable solution is to have a business valuation done and him pay you 50% of the valuation.
There should be no, question that the business should be 50-50. Just because he is leaving the business does not mean he should get less than 50% of the business. What if he were wanting to start business in the area that he is moving too? Would you want less than 50% if it were you?