recast earnings vs. retained

[Cross Hair]

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

Not sure if this is the right sub forum but..

We may be selling our business which I have 12% owner ship in. The guy we hired ten years ago to run the financial side has a clause in his contract for a payout if the business sells during his employment, even if he retains his position under new ownership (which he will)

When I mentioned to the majority owner that that payout would come from retained earnings he said "no, it would come from recast earnings". I couldn't ask him to clarify right then do to being in a meeting and now he is out of state.

I've never been on the financial side of the business but don't understand how you can pay out on a contract with recasted earnings, retained earnings sure, the moneys right there and available, but recasted money is tied up in capitol. (at least that's what I have always thought)

Is my thinking off or do I not understand the difference between the two? I guess it's also possible he and I simply miscommunicated.

If someone could clarify I would be grateful.

Thank you.

 

[AdjunctFL]

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

Not sure if this is the right sub forum but..

We may be selling our business which I have 12% owner ship in. The guy we hired ten years ago to run the financial side has a clause in his contract for a payout if the business sells during his employment, even if he retains his position under new ownership (which he will)

When I mentioned to the majority owner that that payout would come from retained earnings he said "no, it would come from recast earnings". I couldn't ask him to clarify right then do to being in a meeting and now he is out of state.

I've never been on the financial side of the business but don't understand how you can pay out on a contract with recasted earnings, retained earnings sure, the moneys right there and available, but recasted money is tied up in capitol. (at least that's what I have always thought)

Is my thinking off or do I not understand the difference between the two?

Retained earnings aren't money that is there. There could be retained earnings with no money in the checking account. Unless he is a shareholder, the payment wouldn't like come from retained earnings as retained earnings is usually used for dividends. In all likelihood, what you would be paying is nothing more than a bonus treated as wages.

"Recast" earnings are merely a recalculation of earnings based on certain assumptions. If those assumptions are not in his contract, you would need to ask the majority owner what assumptions he would be referring to.