$400,000 Business, Need To Dissolve Business Partnership With My Brother

[Dan Da Man]

I have a business which has recently done $400,000 in total sales over last two years. Last month I got the business to a record $50,000 in total sales. Net profit is about 40%.

So I have partners with my brother for those last two years and we have reached our end. It is really hurting my family. It is also hurting my happiness and my motivation to go on with this business.

Without going to much into the details, here is the current status.

I own 60% of the business and he owns 40%. I asked him to get involved with me as he had no prior experience and I had two years of experience and successful businesses under my belt.

I am working on the business full time. He is working on it zero. This is how it has been for the last 3 months.

I cannot grow the business knowing that I will have to give 40% to him every month. That doesn't help the business and I do not think it is fair to give 40% to someone who isn't working.

However, we cannot work together. So the best option is to buy him out before this gets worse.

I have tried offering him money and asking how much money but at this point he only wants his 40% every month for doing nothing. Vindictive? I think so but regardless I cannot do that. That is 40% being siphoned from the business.

I Offered to give him x amount of money and lower it down to 10-15%. He says he only wants 40% again. For doing nothing.

I understand he put time into the business but how can I be willing to give up 40% to him while he is not involved?

At this point he says the only other option is to dissolve the business and go seperate ways. Dissolving the business would mean dissolving a website that has done $400,000 in sales in the last two years, which $300,000 of that has been this year and is growing substantially (ever since I took it over).

It is very sad that you see people get like this. I even offered him to buy me out. I just don't want to hurt my mom and dad anymore. My relationship with him is ruined of course but I want to saver anything from this.

Please spare the "you should never partner with your family" BS. Trust me, I think I understand that part by now.

Positive advice welcomed.

Thanks

 

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[Digamma]

Man, that sucks. I'm sorry. Both for your family situation and for the mess on such a growing business.

What about selling the business? If you own 60%, you should be able to decide that on your own.
How is the partnership bounded, anyway? Do you have a company?

 

[tafy]

You own 60% right? so you have the power of decision going forward

You have decided to give him 40% of your profits

Now its time for some new decisions

1. Anyone who works gets a salary, since you work you can pay yourself a salary and your brother nothing.
2. Any profits after salary is reinvested back into the business

Simple really.

 

[theag]

Do what tafy said. You own 60%, so you make the decisions.

Sounds to me like you are withholding information from us though. What contracts do you have in place that pay him his share of the net profits each month? Never heard of such an arrangement. Sounds like a tax nightmare if you are paying out profits each month instead of a salary.

Hopefully you have contracts. Else youre screwed.

Sounds like a big pile of shit. Hope you find a solution...

Cant believe people are so shortsighted to get crazy about those rather small sums of money instead of thinking longterm.

 

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[Mark Anthony Le]

^^
Good point tafy

I would also like to point out that if you want to go another route such as dissolve the company (which you don't) you can do it in another manner.


Gather all the email list, data, files, web designs, copy etc from the existing company. Dissolve it. Close the company.

Start the exact same company under different name. Alert your entire email list prior that the company is changing names but service will continue. Resume everything once again.

Presto.

Easy said than done but that was one solution off the top of my head.


Sent from my iPhone using Tapatalk

 

[Deon]

Ah man, my father always told me not to ever work with my brothers or family for this exact reason.

A good lawyer can take a look at the contract and will be able to tell you what you can do in your situation.

Good luck

 

[oldkevx]

Do you have a "buy-sell" clause in your operating agreement? If so buy him out. These mechanisms are designed exactly for these scenarios.

 

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[Y.B.]

Sell me the business for $1, give your brother $0.40 (his share), then I'll sell it back to you for $2

 

[Kak]

First of all you made him a partner to begin with, bad idea.

I'm assuming there isn't a noncompete agreement or anything of that nature correct?

I'm also assuming he is basically holding it hostage and not considering reasonable offers.

When in situations like this look for, build and amplify leverage. You actually have a good deal of leverage, this prick has an income because of your expertise and he doesn't know how to do it himself.

You own the majority of the company, pay yourself a salary immediately. This is before any distributions. He will probably object... That's ok.... He ultimately doesn't have a choice anyway. Your time deserves money.

To get out of it, you can use your leverage that he won't have an income any more. Basically: "you can either take this reasonable buyout or get nothing when I salary all the profits to myself."

You also may be able to dilute his shares depending on your shareholder agreement. Basically reinvest your new salary buying newly issued stock.

You have options... Be clear with him.

 

[MJ DeMarco]

Do you have an operating agreement? Such things should be ironed out there.

That withstanding, pay yourself a salary equal to the month's profits. You have the voting power to do it.

Biz profits = $22K.
Your salary for the month? 22K

And then 40% of ZERO is ZERO.

If that don't get him to the negotiating table...

 

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[Dan Da Man]

I do not have an operating agreement, or at least I do not think. Just the agreement of the LLC which it states that I own 60%.

He is doing all of this out of spite. He is not very happy with who he is and where he is with his life. I don't think he is going to lay down that easy.

He wants to get a lawyer and then it will just turn into an even worse nightmare.

 

[Dan Da Man]

I didnt want it to come to that point but MJ, KAK, you guys are all right. I didn't get in this business to loose.

Thanks guys

 

[RHL]

I didnt want it to come to that point but MJ, KAK, you guys are all right. I didn't get in this business to loose.

Once you're earning the $22K/mo salary, you can immediately divert as much as necessary to secure your own legal council and finish this thing out. For that sum per month you could get the meanest SOB to ever come out of Yale Law School.

 

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[ddall]

Dan, I'm sorry to hear of such turmoil.

I truly hope you can find a scenario with which to properly leave all parties satisfied, and not lose a brotherly bond. Although if your success continues, as I am sure it will, you may forevermore have to contend with your brothers envy and own insecurities.

Perhaps if time is on your side, educate yourself as best as possible in human psychology and negotiation. 48 Laws of power etc...an idea may spark when new concepts from such studies are internalized. Also, get a really good lawyer!

 

[ZCP]

Idea 1....Sell the website domain and assets to another company you have started.

Idea 2.... Pay yourself a salary enough to pay the taxes on a huge profit / dividend that you declare but do not distribute. He will not have money to pay the taxes.

 

[mgore714]

You have majority control. Pay yourself a salary. Let's say you bring in $200k in profit this year, then pay yourself $200k in salary. No need for dividends. Screw him.

And if he decides to sue you:

The courts will side with you. Use your salary to pay for counsel. Then wait for him to dig a hole.

 

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[jon.a]

You have majority control. Pay yourself a salary. Let's say you bring in $200k in profit this year, then pay yourself $200k in salary. No need for dividends. Screw him.

And if he decides to sue you:

The courts will side with you. Use your salary to pay for counsel. Then wait for him to dig a hole.

Don't use your salary to pay for counsel. Have the LLC pay to protect itself. He'll owe 40% of the expense, maybe?

 

[Mattie]

I feel for you, I've watched my cousins go through this and really there is no easy solution. In their position it was decided by their father, because it was a family business generation to generation. Whether they were working or not it was divided. In this situation it's just something I believe you would have to speak to a lawyer about, whatever agreements or contracts you have in writing.

This is tough because you're family has an idea of what you should do. You're brother another idea. In the end it's really up to you? There's no way to really come out of some things without people having hurt feelings or being disappointed. Sometimes it does cause family disputes. There is no way to make everyone happy or spare them pain and suffering as you put it. We burn bridges sometimes and ruin relationships and you have to ask why? Usually it is different belief systems and mindsets. Sometimes it's habits and addictions.

There's times where you can cut the losses and start over if they're small costs, but if they're bigger one's it usually gets to be a major dispute because it is family and they all are to emotionally charged to see things objectively.

 

[Get Right]

I would just dilute the stock.

 

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[csalvato]

As almost everyone has said before, you own 60%. You have the power here. You can do whatever you want. I think if this was a stranger, you would have strong-armed him out of it already.

Something out of the box here that I don't think anyone else said...

Can you find a buyer of the business?

If so, you can sell the business and move on. Another option, once you find a seller, is to bring him on as a 40% partner. Seeing a big lump sum might change your brother's mind.

Either way, it looks like there will be a lot of separate Thanksgivings for a while...

 

[Blackadder]

You might try a "Mexican Shootout" (if you havent read how to get rich by Felix Dennis....you should.)
a type of stalemate breaker that works thusly.

if you have come to a stalemate....each write down secretly what you would buy the other out for, the high bidder walks away with the whole shebang...the low bidder walks away with the high bidders cash.

id have written this clause into the paperwork so that it was THE deal breaker...but it wouldn't hurt to offer it to him.

 

[Mamadoo]

Sell me the business for $1, give your brother $0.40 (his share), then I'll sell it back to you for $2

Would this work? lol

 

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[Mamadoo]

You have more say than he does at 60%. Pay yourself every penny.. pay him 0. Simple? An employee cannot earn money when they do not work right?

 

[100k]

Is shutting down the business an option?

Shut that bish down. Sell your share of the company to him let him be the owner of the whole business, set up a new business with a different name tell all your clients about whats going on and that you've moved to a new company and its been YOU that has been doing all the work and they should move their accounts over if they want to continue getting the services they have been used to getting.

If there is no way to sell it. Then just start a new business and let that current business burn and crash.... (tell the customers about your new business though).

 

[ljb7]

It seems like the posters above have already exhausted a lot of options you may have. It'll be interesting to hear what route you decided to take it.

It's not a great situation, but I wish you the best of luck and I hope you manage to reconcile the relationship with your brother in the future.

 

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[MJ DeMarco]

It seems like the posters above have already exhausted a lot of options you may have. It'll be interesting to hear what route you decided to take it.

It's not a great situation, but I wish you the best of luck and I hope you manage to reconcile the relationship with your brother in the future.

Yea, that's be great @Dan Da Man if you could let us know how you handled this situation and what the outcome was. I'm really curious to how it all unfolds.

 

[benhebert]

First you have to get proper legal counsel and prepare an action plan. Expect your brother to have similar representation.

Coming here on the forum and looking for advice seems like you're either avoiding the problem (aka damaging family relationships for life) or withholding certain information to make yourself feel better.

Regardless it's time to be honest with yourself. That honesty has to extend to your brother and the future of your business.

You're doing almost half a million dollars in two years, that's something to be incredibly proud of. What could you be doing if this huge mental block wasn't standing in your way and you were able to properly scale? What would that mean for your future? Your family? etc.

It's not going to be easy, but realize what you have in front of you and where you want to go.

Best of luck.

 

[rcdlopez]

I know its too late for this peace of advice but take it for the future. ALWAYS HAVE VESTING SCHEDULES!!

I preach that a lot over and over because they are MADE to deal with these situations. Vesting Schedules don't pay people out unless they earn it. Had you done something like this for this business your brother wouldn't be making shit anymore because he's not contributing.

But considering that option is out already, I agree with jon.a

Don't use your salary to pay for counsel. Have the LLC pay to protect itself. He'll owe 40% of the expense, maybe?

If this shit has to be settled with lawyers then he's gotta pay his share too. I know some wont agree with me on this but I would treat this like cancer. In the same way that chemotherapy kills good cells and bad cells to get rid of the cancer, you'll probably have to sacrifice parts of the business to get rid of him. If he's smart then he will walk away with a pay out, if hes stupid then he will bring you and the business down and in turn get nothing.

ALWAYS SETUP VESTING SCHEDULES FROM NOW ON!!!

 

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[Weaponize]

ALWAYS SETUP VESTING SCHEDULES FROM NOW ON!!!

@rcdlopez I totally agree with your Vesting Schedules, I would add a "Vesting Cliff" to that as well. So... They get zero vesting payout until they hit their cliff date (usually 1 year out). May not have helped in this situation since it was 2 years into it when this all went down, but still a good idea imo...

 

[Unknown]

Is shutting down the business an option?

Shut that bish down. Sell your share of the company to him let him be the owner of the whole business, set up a new business with a different name tell all your clients about whats going on and that you've moved to a new company and its been YOU that has been doing all the work and they should move their accounts over if they want to continue getting the services they have been used to getting.

If there is no way to sell it. Then just start a new business and let that current business burn and crash.... (tell the customers about your new business though).

I got a quote from a roofing company that did this exact thing. I had trouble trusting that he was really the good partner. In the end I went with a different company even though he had the best quote. I would worry about running into the same trust issues with your clients.