Problem with members of CC

[anakin]

Yes, Duncan, you are right since we have succesfully opened business account at Nedbank, but the account is not overdraft account - debit account. The company didn't borrow any money from the Bank. Just from the members when the company was established. The current debts outstanding are R120K to one member and R24K to me.

[Dave A]

... but the value of the current assets is slightly more than the current debt.

One partner, who lend the most money to the company, effectively doesn't own the 30% debt-free assets, am I right?

If the loan is to the company and the assets were bought by the company but are security against the loan, then he doesn't own any of the assets. But the company can't dispose of or otherwise encumber the assets either without settling the loan or getting his approval.

Anakin, I'm not suggesting you should accept just the R24k for your salary loan. What I'm trying to say is the negotiation on the value of your member interest is possibly being fought on the wrong grounds. You're in a negotiation and part of the art is to confuse issues when it suits.

Let's try to reduce the confusion.
The R24k owed to you for a past salary sacrifice is not in dispute, right?
If so, the point of disagreement is on the value of your member interest.

Have I got that right so far?

[anakin]

I have edited the message with red text further down the thead just in case you missed that part.

Yes, you are right - the 24K payment is not in dispute. The real problem is that they want me to get me out just with 24K as "payment" while they keep the rest and continue with business.

What if they want to close down as soon as I get out then they can just settle all debt with cash available in our bank balance and get away with sharing all of company assets and resources between them.

If that's not their intention then, as you have suggested, they will need to pay for my "interest" in company. That will be completely square and fair.

[Dave A]

So far so good.

Now just how much in Rands are you looking for your member interest?
(You can PM me the number if you want to keep it private).

[anakin]

I'm not sure how much, realistically, I want 25% of total value of assets and resources as well as "interest" taking the possible/estimated future profits into account. The current profit is almost zero but there are assets and resources should they want to continue with business. There are some possible jobs in the pipeline, but none of them were confirmed yet.

The last year's netto profit was healthy, not bad after the first year since a lot of marketing and running expenses were paid during the first year.

So I'm looking at 25% of the total assets/resources (minus depreciation)plus "interest" in company along with R24,000 the company owes me. It is really difficult to calculate the "interest" after first year of business, but I have made it clear that I'm open to any reasonable negotiations. They still refuse it.

New development: A weird one - one member is willing to give up his share for free now and expect to transfer/distribute his share and debt between the rest of us. I have not responded since I'm not sure if that's possible.

[Dave A]

Anything is possible if all the parties agree.

[Yvonne]

Anakin,

Request that the CC be valued by a professional business broker - Suitegum - Mark Corke - cost approx R6,000 - cost shared by the four partners - that is approx R1,500 - each! far less than legal fees,and a long drawn out dispute, which will harm the existing business anyway!

Make it a condition that they at least slightly alter the name of the CC. - your existing CC closes, so no further concerns regarding any long term liability!

Do not let them continue the CC, as the possibility exists that somewhere buried deeply you may have signed some surety when requesting credit from your suppliers!
It is not a straight forward case of resigning as a member and walking away from liability.

You mentioned earlier that a substantial investment was made in advertising and marketing, that value continues to support them, so asking for your 25% seem more than fair.

Remember however, everyones personal perspective will affect this problem, somone who invested R170,000, will feel that they have a legitimate "ownership" of the assets, you may feel you had worked and sacrificed a lot more than the other partners etc.
This is the major, general area of dispute in partnerships, naturally we have no information on the background for your partners trying to take a larger share!

Have you considered the situation from an entirely different viewpoint?

What value to you in your personal capacity for the "learning" experience, what value could you place on this amasing opportunity you have been part of, for the chance to evaluate the potential of your own business - without partners! as you have now learnt at your cost, of the complications that can arise!
You now have the "Facts" of the financial viability.
Any business that is in a profit situation after one year with such a low capital investment is a winner! especially with 4 partners.

So go out and duplicate it on your own! (In a different area! hopefully not in competition to your existing CC partners!)
Is there any potential "asset" to you if you did begin a business on your own, by using some of their services and retaining a good working relationship?

Apologies if this was not the sort of reply you were seeking.

Yvonne

[anakin]

Hi all,

Sorry, been very hectic - children's book based on award winning animation The Rubbish Monster has been published! I will be in New York City for International Film Festival and my book launch. Photos of book attached! Please let me know if you are interested in getting a signed copy

Back to the business...

Thanks Yvonne for your suggestions... the company is officially on the edge now - zero money left if all liabilties are paid. They don't want to change anything and want to continue with business because they believe they will make profit later. I'm not prepared to take the pay cut either. I have taken enough pay cuts along the way.

You mentioned earlier that a substantial investment was made in advertising and marketing, that value continues to support them, so asking for your 25% seem more than fair.

Not sure what you meant this - does that mean I'm too demanding? They won't be able to use advertising again, but the DVD's, pamphlets, information, etc. are already distributed.

Remember however, everyones personal perspective will affect this problem, somone who invested R170,000, will feel that they have a legitimate "ownership" of the assets, you may feel you had worked and sacrificed a lot more than the other partners etc.
This is the major, general area of dispute in partnerships, naturally we have no information on the background for your partners trying to take a larger share!

The R 120,000.00 outstanding is not relevant anymore because it will be settled as soon as I agree. We couldn't find or don't have any legal documents for either my loan and other member's loan towards the company. It will obviously be one word's against another?

What value to you in your personal capacity for the "learning" experience, what value could you place on this amasing opportunity you have been part of, for the chance to evaluate the potential of your own business - without partners! as you have now learnt at your cost, of the complications that can arise!

I completely agree that I've learned a lot about the business, marketing and budget vs time, etc. but all partners have also benefited from this too. Yes, I agree that this is probably the best opporturnity to start business on my own, but the real problem is that they want to take all infrastructure/assets back and pay me the current worth in assets after depreciation.

So go out and duplicate it on your own! (In a different area! hopefully not in competition to your existing CC partners!)
Is there any potential "asset" to you if you did begin a business on your own, by using some of their services and retaining a good working relationship?

That's exactly what I'm considering at the moment, but I don't want the company to continue operating under the same name and infrastructure, especially the agreement they offer. Please check the correspondence below...

---

They offered

• 25% in assets
• 25% of what left in cash balance (zero at the moment)
• Take away all of my work done prior to company establishment but not the contribution towards the company since its establishment.

I don't find it fair enough.

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My response:

Hey,

Sorry, it doesn't make any sense because that's definitely not win-win situation. It appears that you don't clearly understand how the
ownership/share of business should work.

See,

If we share cash between us, we all benefit but zero balance at the moment.
If we share the assets/resources/value of assets in cash, we all benefit.

BUT

this is the real problem...you have got the same company to run using the existing infrastructure, contacts, previous advertisings and reels, my massive contribution to the showreel during the past year to be used as marketing FOR FREE. I still own 25% of those legal intangible assets! We will have to negotiate otherwise we will have to hire independent business broker to evaluate the cost of buying me out - it will cost company R 6000 or R 1500 from everyone of us.

Please bear in mind that company never buys partner out with its money, it is the partner or any other people who are interested in running the business (buying "interest" in company) and believe that they will make profit in the future. For example, you see when the company is struggling and you see it as opportunity to buy the share in company with believe that the company will do well in the future.

Sorry, that is not win-win situation. I will lose the most basically because of financial strain. This also doesn't make any sense because I was liable to pay 25% of total salaries including mine and this also apply to all of you.

Hope you will understand,

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Partners' response:

Hey,

I'm sorry, that's the way it works. If you are prepared to hire an auditor to do this for us, then you will get even less than you would get otherwise. So I suggest that you accept, I'm eager to move on.

As for you saying its all good but the part where the rest of us have a company that we have all worked very hard on; sorry that's the way it works. We gave you an offer, salary cut, which you said you would take if you could not find work (I assume you are ok and got work now). The company will not be closed, but whatever you contributed to the reel will be removed from our reel/marketing etc. It is entirely fair, considering you had a choice, but chose not to take it.

So, the offer still holds. You have no option but to accept. Whatever happens, you will receive an aggressive buyout contract from us, and you will be expected to sign it. Also, from previous discussions, we expect the hardware/software/data returned to us in good working order. Everything we discussed previously will be put on paper.

Let us know what your thoughts are. The way I see it, we have no option but to accept.

Cheers,

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The question is that if it will be worth hiring broker to handle the problem? I don't care about my share but I don't want them to continue with business that I've invested my skills heavily into and let them use company's 25% asset as buy-out.

From my perspecitve - I see it as liquidation angle (assets are the only surplus at the moment) and they see it as opportunity get me out.

Please let me know what you think?

Thanks!

[Dave A]

They offered

• 25% in assets
• 25% of what left in cash balance (zero at the moment)
• Take away all of my work done prior to company establishment but not the contribution towards the company since its establishment.

That last item, the rights to the work you have contributed towards the company since its establishment - does it have a capital value?

From what I can see, what is missing in this picture is the value of the artistic assets the company intends to keep.

Then there is the goodwill. But a fair chunk of that might be your reputation which, if you exit without a restraint, you'll be taking with you anyway.

[anakin]

We, most of us, worked on the several jobs (Graca, Aerie, GMG) during the period of the company and I contributed the most. I feel the they have right to use artistic work as company's showreel or company's marketing should they want to continue with business because the work was done using company's resources/assets. Why am I not allowed - they are afraid of the competition?

It is hard to tell what the current value is, but the client could come back for "sequel" or second campaign.

One thing that I don't feel right about is that I will only get the 25% current value (after deprecation) physical assets in company and then they just continue under the same name, using the same resources. Am I basically buying myself out using my 25% in assets and they use the current infrastructure/clients/marketing to continue the company 2 or 3 steps ahead? It is like a freebie to them!

Company - Member in question
25% in Assets: win-win
25% in cash: win-win (zero)
Artistic work during the period of company to be used as marketing: win-lose