Legal Question in Business Law in California

Re: President Wants Out

How much is the business worth?

Re: President Wants Out

"Fair" is whatever the parties agree upon. Without such agreement, a lawsuit will logically be the next step. The corporation documents should specify the proceedure for determining value. If they don't, the formation wasn't very well done. Ultimately, the corporation would have to be appraised by one or more experts, with costs borne by the corporation, with payment to him based upon his share of that appraised value. Sounds like it is time to get an attorney to assist in doing this right. Contact me if interested.

Re: President Wants Out

Whatever the parties agree upon is "fair" almost by definition, so long as all the parties share the same information about the company's status and prospects. However, there are many situations where businesses (or interests in businesses) have to be sold or cashed out and there is no agreement - divorces, settling estates, squeeze-outs, etc., and absence of buy-sell provisions between the co-owners may be, but isn't necessarily, a sign of poor planning by the business founders.

Your question does include some of the facts that a business-valuation expert would need, but omits several other necessary facts, including:

1. Did the person to be bought out contribute to the success, e.g., by having special skills or knowledge?

2. Did the person to be bought out receive a salary in addition to the distributions?

3. How old is the business, and what has been its history of profitability?

4. What are the company's longer-range prospects?

5. What is the company's book value? Liquidation value?

6. Will the selling shareholder give an agreement not to compete?

There are experts who value businesses for estate and divorce purposes; the above six items are essential facts they would need to know in order to give the owners an estimate of the value of a "control block" of shares.

A controlling interest is always worth a premium over shares representing a minority interest.