Problem with members of CC

[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.

---

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,

---

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,

---


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

[anakin]

The artistic assets like they can use in filmmakers' guide book, newspaper or online production articles, the advertising usually request for company's reel, advertising in film magazine, portfolio on our website. Press release and showreel with big Graca ads on still have to go public.

Yes, Dave - you are right that I'm worried about the reputation and exposure the company will get from the work done if I agree.

If the members say they will "just" refrain from using any job done during our period with immediate effect, but that's impossible because the projects are deeply attached with the company's name.

[Dave A]

It is hard to tell what the current value is

Is there any likelihood of a royalty income?
Is there a value in ownership?
Somehow you need to agree a value on this.

On the name brand - be careful you're not making an emotional decision on this. I for one know about the emotional attachment that goes with something you've created. This has got to be really tough for any artist. Step back, see the product as a commodity to be traded and walk away.

Your real asset is within you.

[Chatmaster]

Anakin, lets say I am interested in buying your share in the CC today, how much will it cost me?

[Yvonne]

Equity value

Anakin,
Congratulations!! On your children's book.

Quote:

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.

Just to clarify, I see the advertising investment as an intangible value for the future in other words an asset, you are not being too demanding.

The tone of the reply from your partner gives the impression that they believe they have the advantage, not even being prepared to value the business and share the cost of the valuation thereof shows in my opinion, that they do not seek a win/win situation, and are willing to risk an outright dispute.
Definitely sounds as if you are being maneuvered out of the business.

You need some professional advice and assistance, and only you can know how much value you place on investing in a dispute with them, which ultimately could lead to the loss of the amount they are prepared to pay you out, and in the end the only value out of the dispute you may receive, will be to prevent them continuing the business.

Is it worth R24,000 to you to stop them!

As to whether the valuation cost would be worth it, if the partners refuse to pay, they will just as easily refuse to "accept" the professional valuation, the value is not what any person claims it to be, but as in the last post, what someone would "Ask" and what someone would "pay".

You have a massive headache here, and I can only imagine how disappointed you are with the way things have turned out.
Ultimately with three partners trying to maneuver one to give up their shares,
the odds are strongly against you.

Personally, I would definitely react emotionally to their comment - that is the way it is!
According to who? I would ask.

The questions about “royalties” are crucial, and I know nothing of these matters, if you have the ability to retain your personal ownership of any royalties, only then would I imagine that you had any leverage.

An option is to refuse to accept their offer and retain the shares! Which they will then deliberately dissolve by forcing issues.
You could consider making them an offer for the business based on their own valuation of your shares!!!! R24,000 for 25% - Therefore R72,000 for the business! How much do you yourself feel the business is worth?

Seth Godin's blog. http://sethgodin.typepad.com/seths_b...on-equity.html
Although this is rather long, I have entered the blog in its entirety as I feel it is excellent!
Advice on equity
A friend asked me to help him think about how to split the equity in a company he was starting. His colleague is contributing office space and some key technology. My friend is responsible for where the business goes from here. I told him this:
If you apportion equity, you will certainly do it wrong.
That's because it's based on a snapshot, a moment in time.
Sure, today, your partner's share is worth 50% and yours is worth 50%. His because of what he did, yours because of what you're going to do.
But a year from now, that number can't possibly be right. You may have acquired six more pieces of software, raised millions, traveled the world, closed sales and sold the company. Wow. Or, you may have done absolutely nothing.
So, my best advice is to say, "Today, right now, your contribution is worth 5% of the company and my creation of the company is worth 5%. The other 90% is based on what each of us does over the next 18 months. Here's a list of what has to get done, and what we agree it's worth..."
And then make a list. Stuff like commenting and updating and supporting the code. Stuff like closing sales and hiring people and raising money...
Of course, you leave an out for unforeseen events and dilution based on bringing in new partners.
You may end up having small agreements about how to interpret the list, but this sort of advance flexibility is well worth the awkward conversation it takes to get it started. Another tip: put in a clause appointing a trusted third party as an arbitrator, so small disagreements don't snowball into litigation.

Yvonne