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.

I am so glad to read that you’re sticking to your guns and going for what you are rightfully entitled to. Anything less would be, in my opinion, foolish. In these circumstances she isn’t your friend, she is a business partner, and the situation should be treated as such. Anyway, it sounds like your friendship is over as it stands sadly.

Christ, what does she think Private Equity does. What a twat.

Just Be careful she doesn’t phoenix

I can’t believe she’s letting this effect your daughter, she was never a friend in the first place, it sounds like she’s just an arse anyway and was the one in the wrong but even if she wasn’t you don’t allow it to impact on others children no matter how mad you are with the person. Her entitlement it’s just another level.

Don’t let her win OP! You’ve got this!

Also if she was to “out” you on social media make sure you’ve documented everything she’s done so far then you can not only sue her for it but also show the world you weren’t the A-hole and her all lovey dovey social media presence will be shattered.

If the value of the business has gone up x5 then why not? The other woman’s shares have gone up 5x and so have OP’s. That’s literally what investing is for. The op can sell her shares or not sell her shares, unless she has a clause that stipulates otherwise, but this woman can’t just force her to give her shares for less than what they’re worth. And why should she?

op, you definitely should take the value of your shares now. Don’t feel guilty or whatever. Just go through lawyers and get out asap as she sounds like a nut job. BUT don’t say things like “she’s put close to nothing in” or whatever you said because when you’re the one to work on a business and your bring, times, sweat, tears, contacts, thought, skills, talents and/or whatever else, you are contributing just as much if not more than money. When you say this it makes you sound dismissive of her achievements and will no doubt piss her off majorly. Using a stay at home mum analogy - You pay for the baby, but she rears the baby. Both equally important, just different, roles.

Fingers x you get a sensible outcome here OP but I do fear that this person is sufficiently stupid to actually burn the thing to the ground, cutting off her nose to spite her face, rather than pay out what you're actually due!

It’s not demanding ffs.

the business will need to be valued and if it’s gone up in value then the OP will be paid what she’s owed. Don’t forget to value the “goodwill” of the business OP and good luck!

You've said the business was her idea and she does all the labor - does the business have value without her? If she were to stop working tomorrow, would your share actually be worth 5x your investment if the business were sold to an outside party?

That's irrelevant. The OP made an investment for 20% of the company, that is a legal agreement.

I know someone that’s just revived £10m for a silent 50% share. That’s the way it works.

The relevance is can this woman sabotage the company by leaving and make it just about worthless, if she’s mad enough about this.

Quite. So the only way she regards it as a loan is if she regards it as an interest free loan.

Business is business. Obviously you are right here. Your initial investment allowed her to create and grow the business. It was structured professionally with legal agreements.

But the problem is friendships are involved and sadly this often muddies the water as you are currently experiencing. Friends often have unrealistic expectations based on emotions rather than a business transaction. She’s obviously in that category.

I hope that you can resolve this, obviously without reducing your expectations of investment uplift. I doubt now that any friendship between the two of you or your children will survive though.

I run my own business and have learnt in the past business and friends don’t mix. Sorry that you’re currently experiencing the same.

It does seem very unfair that her (large majority) 80% is now worth 5 times as much, when she wouldn't have any more than her original few thousand capital if you hadn't invested heavily in it and enabled her to benefit from that huge increase - if she's going on her own 'reasoning'. Or has she conveniently overlooked that part?

Why not offer to buy her 80% stake in the business - obviously paying a tiny bit more for 80% of its current value than what 80% of it was worth originally. Well, those are her rules.

Has she ever owned a house and then sold it after a number of years? Did she refuse to accept more than a few percent over the price that she originally paid, or did she take every penny that the current market then yielded for it? I doubt it, somehow...

No, it isn't. The value of the business if sold to an unrelated party (the fair market value of the business) is absolutely relevant to the value of OP's interest when bought out.

Agreed. These one person companies are easy to close down, taking the clients to another company you 100% own and paying any assets out of the company via salary /bonus.

It's huge risk here -agreeing to sell at a compromise rate between investment cost and the 5x value is probably your best bet unless the contract has sone very iron tight non compete clauses for her.

Then she would be cutting off her nose to spite her face.

OP is a director and has access to accounts, any payout of assets will still have to be split 80:20.

What you are describing can only happen with a one man business, this is NOT a one man business, this business is run through a registered company with directors and investors and she can’t just shut it down and transfer all assets to her new company or pay herself through salary and bonus. That is not how it works.

The one man business your talking about means only one person has 100% ownership and does all the work with no employees or investors etc, this is not the case here at all.

OP has a legally binding contract and her friend can’t just decide to make changes when it suits her. And the friendship is pretty much over so OP should ensure all communication on this matter going forward is through her solicitors.

The company can remove assets from
The company by paying the 80% person a high salary or bonus

To be fair the company is unlikely to have many assets ie no building or physical assets -just sone cash in bank and debtors owed.

Once paid out the balance sheet is empty. All the "value" is in the future revenue streams. Which can go if the owner stops providing her services (and sets up a new company)

The only way a company can't pay an employee /director a massive salary is if the articles or shareholders agreement prevent it of course.

People can remove directors too (unless articles prevent it again)

20% shareholders can't do much really. Just get 20% of sale price of company sold.

I think we found F 😂

She reminds me of Moe the Bartender in The Simpsons - when the IRS catches up with him and their agents drag him out of the bar, saying "You've got to pay your taxes, Mr Szyslak", and he's screaming "BUT I DON'T WANT TO!!!"

I think it depends if you need the money or whether you would rather have your peace of mind, only you can answer that but for me peace of mind would win out if the money is not essential.

Absent any specific contract terms, the friend has two (valid) options for getting out of business with OP

1. Buy out OP if the two can come to an agreement on price for OP's 20% interest
2. Issue notice of intent to dissolve the partnership, at which point they would begin winding up procedures and the business would be liquidated, with each taking their % share.

OP needs to figure out what she would be likely to get in the case of scenario 2. If the value of the business depends heavily on the friend's skill/reputation, that can dramatically affect the amount they're likely to receive for the business's assets at liquidation. Ultimately, a fair price to buy out the OP's 20% is likely to be 20% of the FMV if the business is liquidated plus a premium that reflects how much time & money it will cost the friend to close this business and move on to a new one without OP.

You don't even need to liquidate the business. The friend just stops working for it, paying herself a big bonus first to clear out any cash.

Company stays as it is dormant (after paying off any creditors /final tax bills of course)

You now own 20% of something with zero value

Perhaps. This is a sketchier area for the friend and OP might have legal recourse, which is why I didn't get into that.

But the result is the same - if OP is valuing her share based on the idea that it continues to operate with the friend running it as usual, she's off-base. The value of the business's net assets minus the friend's continued involvement is key.

Oh yes I agree. The company is pretty much worthless without the friends input.

Whatever the current balance sheet at companies house shows, assume it's worth 20% of that.