Hello,
I'm currently involved with an LLC from which a partner is asking to withdraw. The operating agreement states that the payment amount due to the partner in compensation for his interest can be calculated from a formula based on the firm's "net receipts." However, "net receipts" is not defined in the contract. Obviously, both sides in the transaction are at odds over how to define the term. One party believes that the definition should be the same as what the IRS uses for tax purposes, which in this case would mean a close approximation to gross revenue, since only returns would be deducted from the gross (and the business in this case processes only a tiny number of returns and credits). The other party is asserting that overhead costs and current liabilities (the business still has outstanding loan and lease commitments) should be taken into account when calculating net receipts, and that what is effectively gross revenue should not be used as the buyout amount.
My question is this: Is there a widely accepted, standard definition of the term "net receipts"? Based on my research, the term is context-dependent, and its definition is whatever the two people entering into a business relationship agree that it is. Since in this case the term wasn't explicitly defined in the contract, where is the best place to look for a "standard" definition that might apply to the withdrawal of the member from the LLC?
Thanks very much for your time and your help.
I'm currently involved with an LLC from which a partner is asking to withdraw. The operating agreement states that the payment amount due to the partner in compensation for his interest can be calculated from a formula based on the firm's "net receipts." However, "net receipts" is not defined in the contract. Obviously, both sides in the transaction are at odds over how to define the term. One party believes that the definition should be the same as what the IRS uses for tax purposes, which in this case would mean a close approximation to gross revenue, since only returns would be deducted from the gross (and the business in this case processes only a tiny number of returns and credits). The other party is asserting that overhead costs and current liabilities (the business still has outstanding loan and lease commitments) should be taken into account when calculating net receipts, and that what is effectively gross revenue should not be used as the buyout amount.
My question is this: Is there a widely accepted, standard definition of the term "net receipts"? Based on my research, the term is context-dependent, and its definition is whatever the two people entering into a business relationship agree that it is. Since in this case the term wasn't explicitly defined in the contract, where is the best place to look for a "standard" definition that might apply to the withdrawal of the member from the LLC?
Thanks very much for your time and your help.
