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Thread: What happens when 2 CC directors split up?

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    What happens when 2 CC directors split up?

    Hi guys,

    I'm new to the forum so please feel free to move this post or let me know if I infringe any policies. I'm looking for advice as myself and my business partner can no longer work together. We both own 50% of a CC (training industry) but a financial dispute has forced us to re-evaluate things. I realise that a lawyer is probably the best option but I'd like any thoughts on options before I go down that (costly) route.

    I basically invested 75% of the money needed to startup the business, and that was reflected in the books as a loan account. He has now recouped all of his investment, but I'm still owed approx R200k. The business assets amount to approx R90k, and our customers pay by debit order on a monthly basis.

    The company doesn't make much profit, as the property lease and business expenses account for all but R8k per month (which is taken as wages).

    The company has built a successful brand.

    So, my concern is about how we move forward from here.

    1. Liquidate. I lose my loan account, but I suppose the assets become mine as I'm a creditor? What happens to the brand, and regular customers - does it become a 'free-for-all'? Has anyone been through this sort of process, and was it expensive?

    2. He pays off his portion of the loan account debt so we become equal partners in terms of investment and we try to work in the same premises, but on alternate days. Has anyone managed anything similar?

    3. If he doesn't want to do either of the above, can an application be made to the courts to 'force' someone out of a CC?

    I realise a lot of this depends on how much we agree on, and the solicitors will have to get involved, but has anyone been through anything similar?

    Thanks in advance,

    Dave.

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    Diamond Member Justloadit's Avatar
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    What I did in a a situation like this some years ago, I simply turned to the partner and said, if we liquidate, you will be sued for the loan account owed to me.

    I then said, that if he signed over his shares to me, I would sign a document in which the company would not have a claim from him, but he would have to leave immediately, and he would have to sign a document that he would have no claim against the company, nor would he be responsible for past or future debts or profits. - he would lose nothing, but has gained his original investment and wages - so no loss to him. The company would continue trading, and you would be the sole shareholder.

    If he wishes to be the sole owner of the company, he would then have to reimburse you your loan account, and you then would sign the document to not having any claim against the company not the company have a claim against you.

    Once the decision is made, then it is easy to resolve.
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    Site Caretaker Dave A's Avatar
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    Nice one, Justloadit. It's going to be interesting to read what other ideas members might have on how to squeeze a result.

    Over the years I've had two 50/50's go South - and although they both had different processes and resolutions, they shared a common first step: a mutual agreement that the partnership couldn't continue in the same manner as it was being conducted now. After that big step, the rest was relatively easy to agree on.

    I've got some questions that you should probably consider along the way:

    Have you got a partnership agreement?
    And if yes, how are disputes resolved per the agreement?

    Are the member loans subordinated as on the face of it the cc is under water?

    Is there any agreement in place that in the event of winding up of the cc, the capital losses shall be shared in proportion to the member interest (in your case, equally)?

    Is your partner worth suing (sufficient attachable assets in his/her own name)?

    Is there provison for salary sacrifices? (There's nothing quite like forcing zero salaries to members until debts are paid timeously and member loan accounts are equalised to induce a sudden loss of interest).
    The trouble with opportunity is it normally comes dressed up as work.

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    Thanks very much guys, much appreciated.

    On a related note, anybody know whether logo 'ownership' (either copyright or trademark?) can be owned by an individual, or does it have to be a business? Has anyone gone through the process of obtaining rights to a logo before?

    Cheers,

    Dave.

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    Gold Member Martinco's Avatar
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    Can be owned by an individual if so registered.

    You have to register the design/logo with www.cipc.co.za . However not as easy as it sounds, you have to go through the right channels.
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    Quote Originally Posted by Dave A View Post
    Have you got a partnership agreement?
    Unfortunately not, I guess the glass were tinted with rose at the time.

    Quote Originally Posted by Dave A View Post
    Are the member loans subordinated as on the face of it the cc is under water?
    I don't think they were specifically subordinated so I'm guessing they just follow the 'standard priority' for a CC? (I'm guessing 1. Outstanding external creditors - eg. the lease 2. internal creditors (me) 3. Wages & expenses - is this right?

    Quote Originally Posted by Dave A View Post
    Is there any agreement in place that in the event of winding up of the cc, the capital losses shall be shared in proportion to the member interest (in your case, equally)? ).
    Again unfortunately not. I'm unsure as to how the winding up process works in this respect. Is there a default scenario?


    Quote Originally Posted by Dave A View Post
    Is your partner worth suing (sufficient attachable assets in his/her own name)?
    I don't think he's got much stashed away, he rents is house, and owns his car so I suppose there may be a portion of the debt worth chasing.

    Quote Originally Posted by Dave A View Post
    Is there provison for salary sacrifices? (There's nothing quite like forcing zero salaries to members until debts are paid timeously and member loan accounts are equalised to induce a sudden loss of interest).
    Again there's nothing other than the standard CC documentation. But all things considered, him facing zero wages until the debt has been cleared (18 mths to 2 years) should help guide his decision. I think I probably need to have a chat to our accountant or ask a lawyer some pointed questions. I think at this stage, him walking away & me taking the assets might be the easiest solution - however the contentious point may be the 'value' of the business as he perceives it. I seem to remember there being a formula for calculating such things? The business has established a brand, and turns over approx 700k/annum but hasn't made a profit (and won't do with current projections).

    Thanks again for your help guys, it's going to be a very difficult few months.

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    Quote Originally Posted by Martinco View Post
    Can be owned by an individual if so registered.

    You have to register the design/logo with www.cipc.co.za . However not as easy as it sounds, you have to go through the right channels.
    Thanks, will check it out.

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    Diamond Member Justloadit's Avatar
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    Quote Originally Posted by Dave D View Post
    Again there's nothing other than the standard CC documentation. ..... him facing zero wages until the debt has been cleared (18 mths to 2 years) should help guide his decision.
    The payment of wages is a decision made by the managing member, and has nothing to d owith and standard CC documentation. The company has debt, and sorry there is no money for wages - period.

    Quote Originally Posted by Dave D View Post
    I think I probably need to have a chat to our accountant or ask a lawyer some pointed questions.
    The accountant is not really going to say much, a lawyer will be a better path, as he will explain the legal ramifications of your actions.

    Quote Originally Posted by Dave D View Post
    I think at this stage, him walking away & me taking the assets might be the easiest solution - however the contentious point may be the 'value' of the business as he perceives it. I seem to remember there being a formula for calculating such things? The business has established a brand, and turns over approx 700k/annum but hasn't made a profit (and won't do with current projections).
    The Company has no value right now, it is on the brink of collapse/liquidation!

    If he perceives to have value, then let him raise the cash to buy you out and continue with the business!

    If does not have the funds to do that - well life is a bitch, he has no option but to accept your offer and his exit strategy or face the consequences of legal persecution due to you suing him for his share of the loss. The fact that he has no money, does not stop you from suing him, which means that he has to either sequestrate himself to avoid further financial ruin, or pay the debt.

    Life is not fair, and if you want the benefits, you must be ready to accept the consequences when it does not work out.
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    One technique I've heard of to resolve the value of a company is as follows:

    1) First the members need to agree that they cannot continue doing business together and that a split or liquidation is necessary.
    2) The one member (A), normally the one most likely to leave, will determine what he feels the company is worth and put that value on the table. It might be an accountant calculated value or it may be his own gut feel. It does not matter.
    3) Once that "offer" is on the table, the other partner (B) either pays him out for his share of the value and takes control of the company, or if the value is too high in his opinion, rather takes the money value as determined by (A) and sells his shares.

    Its not a perfect tool and does not work in all scenarios, but does keep the guys a little realistic when coming up with a value, just in case they have to pay it instead of receive it.

    Too apply pressure in your negotiations with your partner - and thats what really has to happen now as there is no "prenup" agreement, so its all down to negotiating - you could mention the following:

    1) If the cc's liabilities exceed its assets, the entity is trading recklessly and the members run the risk of being personally held for the cc debts. Does your partner want this risk?
    2) As mentioned already. Salaries and drawings by members get put on hold until cc is profitable and solvent again.

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    Selliing my shares and SARS/VAT implications

    Hello all. I am also new to the forum and trying to source crucial information without the cost of lawyers and accountants due to financial constraints. I am selling my shares to my partner (we have an agreement in place and are both happy with the status quo). What is unclear and I have been unable to find out via my usual 'Google' attempts is what needs to happen on the SARS side, especially with respect to VAT. I assume I don't need to re-register for VAT (correct me if I am wrong), but presume there must be some steps/hoops to go jump through. Any advise would be very helpful.
    Last edited by Dave A; 25-May-12 at 11:54 AM.

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