minority owner share reduction question

[Cross Hair]

What is the name of your state (only U.S. law)? Ohio

I own 12% of a small business that I would like to get out of, the other 88% is owned by the business founder. My share contract specifically spells out a 40% share value reduction do to lack of liquidity, I'm OK with that.

My questions concerns retained earnings and possibly money held in our checking account. We are debt free for the record.

1) If I sell my shares am I entitled to 12% of our cash holdings? Such as retained earnings and checking account money.
2) If I am entitled to those monies would the 40% reduction apply even though it's not specifically addressed in the contract?

I realize since it's not spelled out in my contract it's possibly negotiable, I would like to know what is typical or if I have a legal right to that money.

Late last year we almost sold the business and all our held monies was going into our pockets at the time of sale, that deal fell apart at the last minute. It got me wondering if as partners that money would go to us would it happen the same if I sold out my stock individually.

 

[Zigner]

It doesn't work that way. You have to look at the overall picture to find a value.

 

[LdiJ]

What is the name of your state (only U.S. law)? Ohio

I own 12% of a small business that I would like to get out of, the other 88% is owned by the business founder. My share contract specifically spells out a 40% share value reduction do to lack of liquidity, I'm OK with that.

My questions concerns retained earnings and possibly money held in our checking account. We are debt free for the record.

1) If I sell my shares am I entitled to 12% of our cash holdings? Such as retained earnings and checking account money.
2) If I am entitled to those monies would the 40% reduction apply even though it's not specifically addressed in the contract?

I realize since it's not spelled out in my contract it's possibly negotiable, I would like to know what is typical or if I have a legal right to that money.

Late last year we almost sold the business and all our held monies was going into our pockets at the time of sale, that deal fell apart at the last minute. It got me wondering if as partners that money would go to us would it happen the same if I sold out my stock individually.

If you are selling 12% of the shares of the company then the fair price is 12% of the fair market value of the company. In order to determine the fair market value you really need someone who specializes in appraising businesses.

That being said...cash on hand is a major factor in determining fair market value. Business assets, goodwill, contracts, annual sales and many other factors also go into determining fair market value.

 

[Zigner]

It's entirely possible, depending on the overall valuation of the company, that you own 12% of nothing.

 

[Cross Hair]

Just to throw the numbers out there. The negotiated offer we had last fall was 3.6 mil and we kept all cash on hand. Retained earnings and checking balance was just shy of $500,000. The deal fell apart because the majority owner owns the building as a separate business and tried to force the potential buyers into a ten year lease, they said they would accept a three year lease but no longer, the majority owner refused.

My question was if I negotiate a buyout offer for the 3.6 plus 12% of held cash is the total reduced by 40% or just the 3.6? What I get you are saying is the value becomes one sum, say 4.1 mil, so the total buy out paid would be reduced by the 40% minority owner clause. Correct?

 

[Zigner]

Just to throw the numbers out there. The negotiated offer we had last fall was 3.6 mil and we kept all cash on hand. Retained earnings and checking balance was just shy of $500,000. The deal fell apart because the majority owner owns the building as a separate business and tried to force the potential buyers into a ten year lease, they said they would accept a three year lease but no longer, the majority owner refused.

My question was if I negotiate a buyout offer for the 3.6 plus 12% of held cash is the total reduced by 40% or just the 3.6? What I get you are saying is the value becomes one sum, say 4.1 mil, so the total buy out paid would be reduced by the 40% minority owner clause. Correct?

Frankly, for a company with such a valuation, you will want to seek out personalized advice, not an internet forum.

 

[LdiJ]

Frankly, for a company with such a valuation, you will want to seek out personalized advice, not an internet forum.

I agree. The 40% reduction minority owner clause seems a bit fishy to start with, and there is simply too much money involved to do this without an attorney.

 

[Cross Hair]

I do intend to have an attorney involved, it's certainly beyond my abilities to handle on my own. I'm just trying to get as much info as possible before I begin the process.

Thanks for the input.