To stick to terms of agreement with friends

[Bungybungy]

Burner account. I’ve been friends with F for decades. She had a large social media presence. I’ve worked hard to establish my business and have been successful. I’m proud of what I’ve achieved. 5 years ago, F came to me with a business idea, wanting to set up herself. She didn’t at that time have the funds to set up by herself so I agreed to invest a not insignificant sum in return for 20% of the business. She was happy with that deal, and because I work in legal services, I got our guy who deals with contracts to draw up an agreement specifying what rights and responsibilities etc. Although this was an area she had worked in before, she had never actually run a business before. I guess that’s why she came to me in part, so it wasn’t just about the money. To her credit, and using my advice, the business has grown quickly and is well known. At the time of the investment I understood that I could just as easily have lost my money completely.

Our relationship is now very difficult as I’ve realised over the last 2 years that she’s been distancing herself from me, which is fine, relationships come and go, but last week I got a letter from her solicitor telling me that she was unhappy with my ownership and that she wanted to buy me out for just over my initial investment. Given the business is now worth several times over my initial investment, I can’t accept that (she put close to no money in herself). For her to pay me off would cost her 5 times my initial investment. AIBU to expect her to honour the agreement? I know she’s contractually bound but she’s been so vile about this, I’m second guessing myself. She keeps threatening to “out” my business via her social media(I have no idea what this means). I’m actually scared about what she could do.

That’s not going to happen. I don’t think me effectively giving her my money for no return would be the moral choice. The idiotic choice, sure, but not moral. Like I said, she just can’t seem to understand why I won’t just roll over and give her what she wants. She had a coffee with a mutual today and said as much. I’m now properly fired up. Solicitors letter going out Monday.

Good for you OP!

her success has gone to her head… she’s being totally unrealistic and selfish

I would refuse to sell up just to piss her off.

Good you’ve got a mutual to keep you in the loop OP! What an arse

@Bungybungy maybe my use of the word "moral" was hasty. For what it's worth I did not intend to imply that any other choice was immoral in any way. It was just an option, I can't imagine what I wpuld do in this situation.

What does the Shareholders agreement say? That will set out what can and can't be done.

As a general opinion, As the business was established 5 years ago, I think she's rather missed the boat on buying back your shares at original value. You might have been open to this after year one or two, but 5 seems far too long.

If she wants to negotiate to buy your shares, her first step is to find the EBITDA and see if you'll negotiate on that.

What did your mutual friend say back?

You’ve got the moral high ground for sure.

She is chancing her luck.

You'd give away your money - a big sum - to someone who is ungrateful and treated you badly when you did them a massive favour? Why?

She asked F how much she thought the business was worth now but F said that wasn’t important but it’s the principle that matters more.

Are you also a director?

Yes, why? You'd be a mug.

😂 Well she's absolutely right but it's amazing she doesn't see the irony in her words as her 'argument' sides with you

I'm afraid in your shoes OP, I'd be digging my heels in and saying, 'no, sorry, I don't want to sell at this time', then if you've got the money, you could always really wind her up by offering to buy her out!!

Seriously though, why not hang on to your shares, if you think the business is going to continue to make money and increase in value, then I'd hang on in there. She is really trying to shaft you, which is very unfair, when you were good enough to show faith in her abilities by actually investing hard cash to back her, so she deserves to suffer after trying to rip you off.

OP

if she'd LOST money, she'd be calling it an investment.

Now she's MADE money, she's treating it as a loan.

Fuck that.

One of my previous roles involved valuing companies for M&A transactions. Applying a multiple to profit is a sound method and I was going to warn against manipulation of EBIT/EBITDA but it sounds like that won't be a problem if you have visibility of the accounting side.

Ethically you shouldn't feel bad. You provided the capital and took the risk. Private equity firms would be far tougher (I've seen some very unhappy management teams when drag along provisions are enforced by the financial investor and the whole company is sold).

She asked F how much she thought the business was worth now but F said that wasn’t important but it’s the principle that matters more.

Wot a tit 😂

But the deal was OP had 20% of the business for her investment which was necessary for the business to take off. If 20% is 50 times her original investment that is what F needs to pay her if she wants to buy her out

Make a counter offer to find a way to resolve the matter. Sounds like you have experience in these issues so you'll know how to respond. In regards to outing your business, ignore but bear in mind threats like this. Don't pander to her. Only you know how you run your business and I'm sure there's no genuine issue she's talking about, probably clutching at straws. Don't engage in conversations she can later then use about this topic. In the event she does make inappropriate comments you can counter with the relevant response depending on whsts been said.

I am, thank god.

Sounds like the friendship is long gone. There is no moral take on this at all except that she morally and legally needs to honour the agreement. She may well kick off, and at that point if it starts damaging your reputation I would suggest looking at a libel (or slander if spoken) case.

to prevent this from happening is there anything in you contract about that? Can that be negotiated as part of your sale?

if she does anything screenshot, take notes, keep emails as potential evidence and if she has threatened it may be worth instructing your solicitors to write to her to say that you will pursue a claim if she defames you.

If she’s saying she didn’t understand the contract then she’s not much of a business woman, never sign something you don’t understand!

She’s had the money and taken the risk and it’s paid off and the price of that is that you own 20% of her company, I’m assuming there’s a reason she didn’t take the risk with a bank loan 🤔

Investing in a business is about taking a risk: you may lose the lot or come up roses. You're entitled to your share if the profits as well as your initial stake.

If she's distancing herself then let her go. But take everything that you're entitled to. She certainly would if the shoe was on the other foot.

This is excellent advice