Celebrating 10 years! 2007-2017

Buying out a partner

My cousin owns a failing shoe company. Basically, he thought superttthero08/03/17
No idea but you also need to think about the corporate gover vespucius08/03/17
Do you mean like going through the right approval from the o superttthero08/03/17
Yes, exactly. Make sure everything is doxumented, approved vespucius08/03/17
The partnership agreement governs this. loser1208/03/17
I'd get an attorney. The biggest concern I'd have is if you qport08/03/17
This is why an attorney is well worth the cost. Transactiona thirdtierlaw08/03/17
SuperTHero, now's your chance! LOL. Seriously, you've be jeffm08/03/17
A) it doesn't matter what the partnership split is, but 50/5 dingbat08/04/17
1. Sale of Stock Agreement where Partner sells all shares to isthisit08/04/17
superttthero (Aug 3, 2017 - 4:30 pm)

My cousin owns a failing shoe company. Basically, he thought he could use his industry contacts to make his own high end shoe. It's not going well.

From what I understand, his partner and him both put $X in to design and market some shoes, incorporated (c-corp), trademarked the name, and bought inventory from a factory that made their designs.

His partner wants out, my cousin wants to buy him out. They are broke now, so the guy will take peanuts and my cousin just wants to make sure he owns everything. The company has some AP to some manufacturers, but just a few thousands they are paying down as they sell inventory.

They can't afford an attorney. They own it together 50/50. Is it worth biting the bullet and getting an attorney for this, or can they just draft up something that says, "For $X, partner A sells all his shares, ownership interests, and any and all interests in Company X of any type to [My cousin]" and just call it a day?

FWIW. I have never done ANY of this type of stuff, but I know he can't afford a lawyer right now.

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vespucius (Aug 3, 2017 - 4:48 pm)

No idea but you also need to think about the corporate governance part of it.

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superttthero (Aug 3, 2017 - 4:53 pm)

Do you mean like going through the right approval from the officer's/board and whatnot?

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vespucius (Aug 3, 2017 - 7:07 pm)

Yes, exactly. Make sure everything is doxumented, approved and finalized.

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loser12 (Aug 3, 2017 - 5:19 pm)

The partnership agreement governs this.

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qport (Aug 3, 2017 - 6:24 pm)

I'd get an attorney. The biggest concern I'd have is if your cousin buys out the partner but screws up with his homemade ownership transfer, the shoe company becomes wildly successful, and then the former partner wants back in citing an irregularity with their agreement.

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thirdtierlaw (Aug 3, 2017 - 7:28 pm)

This is why an attorney is well worth the cost. Transactional attorneys at a midlaw type firm could probably handle it for relatively cheap. He doesn't need Cravath for this work.

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jeffm (Aug 3, 2017 - 10:57 pm)

SuperTHero, now's your chance! LOL.

Seriously, you've been presented with the simplest, least risky buy-out possible. Just Google some very simple docs on "Sale and Assignment of Corporate Stock." For $_______, A sells B _____ shares in XYZ Corp. A warrants he is the owner of the shares, and makes no additional representations or warranties. B represents he is familiar with the business affairs and financial condition of XYZ and accepts the shares AS-IS. A releases XYZ and B from any and all claims, including claims for reimbursements, loan repayments, capital distributions and any undistributed profits. B and XYZ release A from any and all claims, including claims for reimbursements, damages and or losses of any kind whatsoever. It is the intent of the parties hereto that neither A nor B shall have any claims against each other, and B and XYZ shall not have any claims against each other. A hereby resigns his offices and employment with XYZ.

There can be plenty of other things to cover, but reality of the situation is the business is in dire straits, and A will be happy to get out. It is unlikely XYZ is going to hit the jackpot in short order. If it is so fortunate, it will be because B hung in there for a lot longer and worked his tail off. A will have been long gone for a long time. B should be safe if he becomes so lucky.

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dingbat (Aug 4, 2017 - 10:52 am)

A) it doesn't matter what the partnership split is, but 50/50 is never the right answer.
(it means they didn't think through what each individual contributes)

B) maybe partner will accept a lowball offer that cousin can afford, and they'll be done with it. Alternatively, you could use a convertible note similar to those used by startup investors who aren't ready to value a company. That way, your cousin doesn't have to shell out any money now, and the partner can get a good chunk if the company becomes successful.

For example, instead of partner accepting $10,000, partner accepts a convertible note for $10,000 with a built-in 50% discount. three years from now joe schmoe invests $100,000 for 10% of the company. Partner's note converts to shares worth $20,000.

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isthisit (Aug 4, 2017 - 11:12 am)

1. Sale of Stock Agreement where Partner sells all shares to Cousin at .01 a share (or whatever). If your cousin is broke than make a payment schedule. X amount of Stock in year 1 for X amount of money.

Also address capital contributions, loan repayments, outstanding wages, etc. of Partner. Conclude with a paragraph making it clear that going forward Partner has no more claims or obligations against Cousin and Corp and vice versa, except for claims that may arise from Partner's actions as (title) of Corp during his tenure.

2. Get a board resolution signed by the right corporate officers (I'm assuming your cousin and partner) authorizing the selling of shares. If your cousin is buying the shares personally than that's it. If it's being bought with company funds or on behalf of the company (buyback) than you need another resolution authorizing the action.

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