HOW CAN I EXIT THE BUSINESS?
Q: I’m a 50% shareholder in a small limited company. We’ve been breaking even for the past three years and are on course to turn a profit this year. The only problem is that I want out – I’m sick to my back teeth of the work and received an excellent job offer in a related field. How do I go about exiting? I haven’t broached the issue with my partner, though we have a good working relationship. Does he have to buy back my shares, or is there a simpler way?
A: You need to discuss the situation with your partner: most of the options open to you depend on at least some co-operation from him, and things could get very messy if you’re going around behind his back.
The simplest option is for you to simply stop working at the business, and for the company to hire someone else in your place. That way, you retain your stake in the company without it being a major burden on your time. For that approach to work, your partner will need to be on board. Depending on your contract, you may have to inform your new employer as well.
If you’re set on exiting the business completely and selling your shareholding, you should refer to the shareholder’s agreement (assuming you have one) to see what you can do. In some cases, for example, shareholders are restricted from selling to third parties, or have to give first option to their other shareholders on any transaction.
Depending on what the agreement says, you can go down one of three ways. The company itself can buy back the shares from you at an agreed price, or your partner can if he wants to spend his own personal cash. If he’s not willing to buy, and the shareholder’s agreement allows for it, you can sell to a third party.
In either case, you’ll need to assign a valuation to the business. As it isn’t hugely profitable, you’re most likely looking at recovering whatever money you put into the business, 50% of the assets, and a relatively small amount for ‘goodwill’ and valuable contracts on your books. This is a tricky thing to define, and you may need to get an independent valuation. In either instance, your first step should be to sit down with your partner, outline the situation, and then jointly talk to your accountants.
Declan Dolan,
Partner,
DCA Accountants and Business Advisors
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