Selling A Company

[Jerry Hrusky]

Jurisdiction

Wisconsin

I have a question on changing business ownership in a partnership.

We have a web hosting company with 2 equal partners. One partner wants out and is only willing to either shut down the company or receive a monetary buyout from the other partner that is about 1x annual revenue. The company has been bleeding customers since covid and is only more of a part-time hobby today. Web hosting is also changing whereas government sites are going to migrate to government servers, businesses are being bought out by large companies and moving their hosting in house, small businesses are closing the doors, etc., so we know the business will continue to get smaller (currently less than 100 customers)

One partner would like to continue the hobby/business but sees no real value in paying the other partner some amount for revenues not yet made as the speculation today is huge. The partner was offered 1/2 the checkbook and equipment value which is obviously that partner's.

While I know anyone can fight anything legally, can one partner typically hold up the other and force them to either pay roughly a years worth of revenue in order to keep the business going or shut the business down? (There is no exit agreement in their business plan, unfortunately). Do they have a decent legal basis if they pursue this?

Thank you.

 

[adjusterjack]

There is no exit agreement in their business plan, unfortunately

Yep, that's what happens when you go into business without the advice of an attorney up front.

can one partner typically hold up the other and force them to either pay roughly a years worth of revenue in order to keep the business going or shut the business down?

Of course. It's called negotiating. The results depend on who has the most leverage.

If A wants to be bought out and is desperate for money then B has leverage. If A wants to be bought out but is willing to sit and collect half the profits without doing any work then A has leverage. I can think of other combinations, but I think you get the idea.

Meantime both are on the hook for the business obligations.

Which one are you, the hobby partner or the partner that wants to leave?

 

[Tax Counsel]

While I know anyone can fight anything legally, can one partner typically hold up the other and force them to either pay roughly a years worth of revenue in order to keep the business going or shut the business down?

The terms of the partnership agreement matter a lot, and you'd want to take your agreement to a lawyer who litigates business disputes to see how what your various options would cost you. He can ask for anything he wants, but if the business is dissolved all he gets is half the money that's left in the partnership after all assets are sold and all expenses are paid off. If he's asking for more than that, then I'd reject his offer and make what I thought was a reasonable one. If you can't agree, you'd have to sue to settle the matter, and it sounds like your business doesn't have the kind of value that would really make it worth fighting over. In the end, you may have to shut down the partnership and then you can try building your own hosting activity as a hobby if you like.

 

[zddoodah]

can one partner typically hold up the other and force them to either pay roughly a years worth of revenue in order to keep the business going or shut the business down? (There is no exit agreement in their business plan, unfortunately). Do they have a decent legal basis if they pursue this?

Depends on the terms of the partnership agreement. If your statement that there is no "exit agreement in their business plan" means that there is no properly written partnership agreement, then the answer will be difficult or impossible to predict (except that it will be fairly obvious that litigation will be expensive).