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Best way to split a business?

(3 Posts)
mulranno Mon 17-Jan-11 09:47:45

My husband has been working for an advertising agency for 12 years now. There are 4 partners - 2 guys nearing retirement who have 40% share each and my husband and another partner who have 10% each. The older guys want to retire in the next 5 years and are happy to "sell" their share of the business to my husband and the other partner for @ £300K each - so that my husband and the other partner would then be 50;50.....This is a fair valuation and independent valuation of their share of the company. What does my husband need to consider to decide whether or not to "buy out" the other partners?.. and what options are there to finance this -- where should he get impartial advice/counsell from a lawyer or an accountant?...I am just worried that he will just tie himself up in knots... and I am not sure what the end game is?

Resolution Mon 17-Jan-11 09:56:57

I think he needs to speak to a trusted accountnant first. As he's already a partner he'll have a good ldea about whether the business is sound enough to justify that kind of investment. Remember though that any lender will want to see borrowing secured against your home. Look at the worst case scenario and compare that to the best case. There are risks involved in anything like this.

BeenBeta Mon 17-Jan-11 10:11:34

He needs a good independent commercial lawyer too who is used to transfering businesses.

One option for financing might be an 'earn out' where your DH and the remaining busness partner pay a sum each year based on the actual earnings of the company. That way if there is a sudden business downturn they do not end up payng too much. The minmum and maximum payment amount can be specified in the contract and the length of time the payments need to be spread over. Your DH and is partner can then use the business profits to partly finance the new business rather than having to find the whole of the lump sum upfront.

The other thing is the contract transferring the business should specify 'non compete clauses'. The danger is the old partners sell out to your DH and his partner then 6 months later the old partners may decide thay dont really want to retire at all and then come along and poach all the best clients with a new business.

One final thing. It might be worth buying just the business trading name and the customer list rather than the actual legal entity itself. The old legal entity can then be shut down by the old partners and any legal liabilities with it. Your DH and his partner then set a clean new business with no previous liabilties hanging over it.

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