First off, let say I’m sorry to hear you’re in such a tight spot with your partner. I’ve been there before, a few times - it’s why I have a strict “no partners” policy these days - and it’s difficult. I don’t envy you.
Second, let me make an assumption - when you formed the LLC, you didn’t draft any kind of agreement governing how to handle dissolution and/or valuate the company for buyouts? Not many of us plan the divorce while we’re still on the honeymoon, but the folks who do have a much easier time when the moment comes.
Before I say anything else, let me say: I am not a lawyer, and this is not legal advice, it is my best understanding of how things work based on my own personal experience with similar issues in years past.
That said, here we go…
We’ve both put numbers out, but we are pretty far apart.
- How far apart are we talking?
- What rationale did he give for his numbers?
- What relationship to your yearly revenue are the numbers you’ve both put out?
I think this likely stems from our view of the roles we each play. I believe he thinks he’s a 50/50 partner and thus should get half of what the company is worth.
I believe he’s 50/50 by contract and not by action and I feel confident I could deliver on the company’s work solo. You can see why I have become frustrated.
If he’s 50/50 by contract, he owns 50% of the company, period, and your opinion of his actions is irrelevant unless you intend to take him to court, allege negligence of some sort, and break the contract. Now, if you can convince him that legally owning 50% of the company is somehow mitigated by him failing to live up to some standard you’re imposing, more power to you. But please don’t let your opinion blind you to the realities.
I think what would help us reach consensus is a principled and fair way to reach a buyout number.
Based on what you’ve posted so far, what each of you considers principled and fair is probably going to vary widely.
Is there a methodology or company that you’ve used in the past that you’ve been happy with?
The last time I found myself in your position, we decided to go through the same valuation process we’d go through if we were going to sell the company outright. Generally speaking, you can value the assets, value the income, or value the market.
With a consulting business that has few assets and most likely an ill-defined market, I would assume you’d be valuing the income (that’s what I ended up doing). Once we had a valuation figure, we decided that one of us would buy out the other for 50% of that figure, paid out in monthly installments over 18 months.
This seemed reasonable and looked promising until my then-partner started trying to justify more of an ownership share than he was entitled to by arguing “but I did X and you only did Y!” issues. I had my own “yeah, but I did N when you were only doing Z!” issues I could have brought up, but that seemed like it would perpetuate the conflict, and what I wanted more than anything was to end it.
Ultimately we had to bring in an arbitrator, and in the end nobody felt like they got a fair deal. I wanted “out” more than I wanted “equitable” so I did what I had to do to get out, which meant giving up money that I was absolutely entitled to. In the past 10+ years, I’ve had maybe 3 barely-civil conversations with my old partner, to this day.
Contrast that with another partner-based business that wasn’t working out. My partner and I shook hands and both walked away and that was that. There was still revenue to be had, still warm sales leads to be sold to, but we both agreed that it was getting toxic and it was time to just let it all drop, and we weren’t inclined to squabble over scraps. We remain close friends to this day.
I guess my point is, you can hire a third-party to valuate your business and go with that, you can take your partner to court to allege misconduct, you can bring in an arbitrator to help you resolve your dispute, and you can probably do a million other things - some more creative than others - to resolve this situation.
Above all else, though, try to understand that, based on what you’ve posted, this sounds very much like a situation in which you can end up being right, or you can end up being happy, but you probably can’t end up being both right and happy.
Think hard about which is more important to you, and optimize for that outcome.
Best of luck! I hope you get what you need out of the deal!