View Full Version : Question about assets/partners leaving

06-09-2005, 08:17 AM
If someone had a share in a company and was leaving that company (being asked to leave, or agreeing to leave), is that person entitled to the value of the companies assets? Supposing the company had something that was currently valued at $1000, but the price of which could very easily increase or decrease over time, if the person owned 20% of company before leaving would they be entitled to $200 because of that asset and its current value? Or is the potential value of assets taken into consideration when determining someones entitlement?

James Boston
06-09-2005, 10:57 AM
I don't know. The situation you've described is rather vague, and no pre-conceived arrangements seem to be in place. Here's my take though. In the case of an LLC, corporation, etc.. my understanding is that you don't own a share of the assests. The company owns the assests in full, and you just own a share of the company. If you want out, you have to find a buyer for your share. You and the buyer have to negotiate what that's worth. You can't just claim your share of the net assets, present or future value. I could be completely off base here, but without more details that's all I can come up with.

06-09-2005, 11:59 AM
Whoever is being asked to leave will still own 20% of the company. This can lead to very awkward situations, so that person is usually "bought out." The other owners negotiate with him/her to buy back that 20%. Neither party has an obligation to buy or sell (unless this was agreed upon when the company/partnership was first formed), so the person being forced out usually has some negotiating leverage. Basically, the remaining owners of the company think it's going to increase in value as a result of their work, and they don't want you leeching 20% of that value off of them. They want to buy you out as soon as possible, before the value increases. Also, they're kind of paying you to go away. So generally, a 20% owner who's forced out will receive more than 20% of the value of the company.

This assumes we're talking about the corporate world, where the money involved is worth more than the relationships. If you have $200 equity in a $1000 company with some friends, and you want to keep them as friends, just settle for $200. See the documentary Startup.com for a situation where two friends buy out a third. The negotiations destroy the friendship, but the third guy does get an extra $100,000.

06-09-2005, 06:39 PM
Thanks for both your posts, they were very helpful