My husband has a small share in a business (10%). The other owners (who put up the intial investment money) gave him a 10% share in the business in exchange for his spending the first year working the business with them with almost no salary. Now, they have just sold the business and two issues have arose. 1) they are deducting their initial investment from the total sale of the business and then saying my husband is entitled to 10% of the money that is left. 2) When their initial investment, which was 42,000 GBP, was made the exchange rate from pound to dollar was 1.6 which would make their initial investment $67200, however, they are now using the current exchange rate from pound to dollor of 2 to say that their initial investment (which again remember they are deducting prior to giving my husband his cut) was $84,000. Neither my husband or I have any experience with any of this but it does not seem right and I was wondering if I could get some opinions/advice/comments?

First and foremost consult with a lawyer and an accountant.

That said, when the business was formed each brought something of value to the table...the investors brought cash, and your husband invested time and energy which also has a value.

Each of the partners should have an equity account reflecting what they have put into the business. In most cases, the equity accounts are returned back to the partners based on their values before any profits from the sale are split. I would argue that you husbands efforts have a fair market value and they paid for that value by issuing him 10% equity in the business.

The other issue is the fairness of the currency value from then to now. I would argue that the value should be reflected by the current value otherwise their losing money on their investment simply through inflation.

I know you don't want to hear this but these things should have all been addressed in the orginal operating agreement when greed would not be an issue. The best time to layout the exit plan is before you enter...minds tend to be less self-serving at this time.
Good luck

Denny

Sorry...I misread something above.

In retrospect I'd say your husband should get whatever a reasonable salary for a year would be in effect that being his share of the owners equity account.
Still consult an accountant and attorney.

Denny

You should consult an attorney - and one that deals with business litigation because I do see you having to litigate this if you want to get paid.

Generally, if you have some type of agreement, but the agreement does not cover a particular provision, the court (or arbitrator) will go to default provisions. I'm sure there are some default rules for partnership agreements - for contracts in general it is the UCC.

Because this is international, it sounds like you'll be in federal court. Just a clarification though - you said the agreement was signed in Africa, the investors are from the UK, but the business was here right? Unfortunately, you may not even be able to sue here at all because of jurisdictional issues. But, talk to an attorney to figure that out.

No, this is generally not the way that things are split up in the end.

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From where I sit, the partners don't get to pull out their amount invested unless your husband gets to pull out the salary that he donated as his investment.

Your husband definitely needs a lawyer and one experienced with International Business Law.

T

Tina Brooks, VP Marketing
Brooks Pepperfire Foods, Inc.
Makers of Peppermaster Hot Sauces
http://www.peppermaster.com

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