[Question] Sale of member interest

[colinj]

Hi dave, I am a member in a cc, we have not specifically stated in our ass agreement what happens if there are no buyers of our interest on sale or exit, all we have is that it gets offered to existing memebers then after 15 days external buyers. but what if there are no buyers and I really want to exit the cc. Lets assume no value on the balance sheet.

[Dave A]

...to the point where you are prepared to abandon your interest?

[colinj]

yes

[Dave A]

I'm desperately suppressing my curiosity about the circumstances.

You could sell it to someone for R1.00. Whoever will take it. The BEE deal of the century

You could donate it to someone, I guess. But they'd need to accept it as there will be paperwork to sign.

Also pay close attention to "loose threads." Make sure you're not on the hook with sureties and the like.

Donating (or selling for R1) to one of the existing members would seem the simplest remedy.

[colinj]

circumstances: I have a potential offer from an opposition company who wont finalise it as long as I am a member of the cc, present partners not happy (no restraints) about that and hence no takers inetrnally, havent gone external, but balance sheet not strong so dont expect any takers (not in short term - as i need). Also need release from sureties as part of the process (is this an issue between myself and the creditors or between me and the cc) ie do I have to contact all creditors and get release individually? Already BEE AAA rating!

[Dave A]

I can understand why your partners are not happy. You do realise that you'll probably have to stay away from clients of the business for a while anyway, even if there is no restraint of trade in place? Your (soon-to-be) ex-partners could still claim damages if you attack the client list.

Also need release from sureties as part of the process (is this an issue between myself and the creditors or between me and the cc) ie do I have to contact all creditors and get release individually? Already BEE AAA rating!

I would recommend you personally ensure your release from sureties and not delegate it. It is, after all, you personally that is on the hook.

As far as I know, you can't just abandon the interest. But as mentioned earlier, you can give it away.

It might not always look like it, but any sale is a result of negotiation between buyer and seller - it's just that sometimes the position is "that's my price, take it or leave it."

Your main problem right now is a lack of leverage.

I wonder if your existing members might be prepared to match the price if you had a signed offer to purchase for R1 from an external buyer who wanted to be a silent partner

Run an ad in the local paper...

[colinj]

Thats an angle I would have to pursue... Do they generally have a say in who as a 3rd party can purchase the share, I have tried to make sense of the clause but it is legal jargon and does not appeal to my ADHD - to be read only after Ritalin! Do members generally sell their shares on exit or is it accepted that you retain your share in 1 cc even though you are not actively involved in the business, lets say I switched industries and was of no threat to the business from an opposition point of view? (hyperthetical)

[IanF]

I would look at a voluntary liquidation as a last resort. Put that on the table then look to sell the business to another CC. Then you can liquidate the old CC. Lingering sureties would be the worry.

[Dave A]

Do they generally have a say in who as a 3rd party can purchase the share

Usually your partners will have to approve the buyer, but that approval cannot be unreasonably withheld. Unfortunately, exactly what is considered "reasonable" can be somewhat subjective.

Do members generally sell their shares on exit or is it accepted that you retain your share in 1 cc even though you are not actively involved in the business

Although objections from other members could be raised in all sorts of forms, probably the core issue is around active participation.

First, the nature of making decisions in CCs leans heavily on active participation of the members. There isn't the clear separation between ownership and management that you have in Pty Ltd companies.

Second, can you hire someone competent to fill your shoes in the CC for a lower salary than you're currently drawing?

...lets say I switched industries and was of no threat to the business from an opposition point of view? (hyperthetical)

It's pretty good practice to at least keep people informed as you go with that sort of thing. I suggest you'll have to be sensitive and responsive to the interests of your partners for you to gain anything out of it, though.

Ultimately, when I look at the issues you've raised as a whole, you're going to have to carefully consider both the legal and strategic angles, both for yourself and your partners.

[colinj]

Thanks Dave you've been a great help!! certainly in ordering my thoughts, I am a new memeber but will definatley make this forum a top spot in business advice and dealings!!