Advice wanted for director in small limited company looking to retire

A question about : Advice wanted for director in small limited company looking to retire

Hi,

I have owned a small service business (hairdressing) with my business partner (equal shares) for 10 years. For personal reasons I want to give up and sell my half of the business whilst my partner wishes to keep the business going (this is not linked to the performance of the business which is continuing to do well).

I have had the business valued but my partner has recently been acting strangely and appears to be trying to find a way to keep going without offering me anything for my share of the business. In fact she has gone out of her way to ruin our friendship and we are now just about civil to each other which is a real shame as we have been good friends for a long time. It's worth saying that this behaviour is not attributable to my decision to leave, as this is not a surprise to her and she is happy to have the business to herself.

I have obtained two independent valuations and would be willing to accept substantially less than the value of 'my' half of the business for a smooth exit but am not prepared to walk away with nothing as the business is ticking over nicely and will give my partner a very decent income. Of course, I can look to sell my half to a third party but I know that she will seek to dissuade prospective buyers, and it is the type of business where they would need to work closely together at times. So, I have a few questions if anyone might be good enough to take a look...?

1. What rights do I have if she refuses to buy me out but continues to put people off or veto them?
2. As the partnership is a 50/50 partnership can I employ someone and pay them myself so she would have no say in the matter?
3. Could I force her to sell the business if she refuses to buy me out or refuses another partner?
4. What would be her rights if I disrupted the business by not turning in and letting clients down (this would be a desperate measure and not one I intend to take, but I ask just out of interest for if things get really desperate!!)
5. As we are both directors, if I was to sell my half to a third party, would my directorship go to my buyer if that was my wish, or would my partner be able to veto this?

Sorry, I appreciate this is long, but I am at a loss as to what my options are at this stage and would really be grateful for some thoughts on my situation. Thanks.

Best answers:

• Forget about friendship - this is a business relationship.
  I think first and foremost you need to talk to each other. As you say, she doesn't have a problem with you leaving. But she does have a problem. I wonder if she just isn't able to afford to buy you out, but doesn't want to admit it?
  At your next board meeting you need to include 'exit strategy' or something like that on the agenda, and talk about what's going to happen in a civilised way.
• Is this a limited company or a partnership. In places you refer to yourselves as directors yet then you say partners. Which is it? It matters.
  Who have you got the valuations from? If you've asked business sale agents, then they're worthless as the agencies, especially the national firms, are well know for grossly over-valuing a business to play on human greed to get you to sign up and pay their up-front fees. To mean anything they should be done by a specialist accountant or business valuer (someone who won't be the one selling it!).
  The value should be based on the profit it would make if it employed and paid two people a proper going rate wage to substitute the two of you. If it makes a profit of say Ј50k, which you split Ј25k each, then the value should be on a profit multiple based on say Ј10k, not Ј50, as you'd have to pay two people Ј20k each to be hairdressers which seems a fair going rate for experienced capable people. Too many people (including business sales agents) forget to take off a proper wage for all the workers in the business, including proprietors.
• Businesses are routinely overvalued by owners, your half may be worth a lot less than you think! That may be why she's upset, she thinks she's getting hosed and taken advantage of.
  Other question is will the company be worth what it is now without you in it? Will it need to hire extra staff, maybe an accountant, maybe have other costs that you've included in your job as director? Staff need holiday say, NI, sick pay, maternity, etc so those must be provisioned on top of salary. That makes the value of the remainder of the business much much lower.
  You mention limited company and directors, so the term 'partners' is probably a misunderstanding. If that's the case, then how about keeping your shares, possibly resigning as director but taking a dividend? You could even agree to be bought out over time. Just be aware the numbers are likely a lot lower than your instinct says they ought to be.