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Question on partnerships & buy outs

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GoGetter24

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Oct 8, 2017
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I've been bouncing around ideas for a new business partnership, but there's a few things I'm still having difficulty working out. I'm aiming to structure a very comprehensive and well thought out partnership agreement to minimize the chances of failure. [before anyone asks, yes corp. has been considered but partnership is a better fit for several reasons beyond the scope of this thread; and yes it'll eventually be put before a lawyer to check it's all kosher once we get clarity on what we want in it]

Let's say, for instance and hypothetically, it's an Iranian tourism services company. There are several partners with different skill sets, experience, aptitudes, and so on. One guy is an interpreter/guide guy, two guys are internet guys, one guy is a management guy, one guy knows his way around a camel.

The case I'm trying to cover is if some guys wants out, or the rest of the partners decide they need him out because he's turned out to be useless or lazy. How does one handle this?

Originally I thought you'd just pay out their capital account (paid in capital for their share of the partnership). But that wouldn't make sense for the same reason paying out the book value for shares wouldn't make sense.

So then I looked into how you'd evaluate the shares or execute the expulsion / buying out process. For both the valuation and the process, there were half a dozen different recommended methods.

So in the specific case of: it is a low capital, services based business, with a mixed-skill partnership who carries out work providing clients with packaged services. Somehow it has to be based on a "residual" business value after that partner leaves. E.g. if the camel guy leaves and the business grinds to a halt as a result until we replace him, that stuff has to be factored in. So does things like the rate of payout, how to fairly force a guy out if he's done well the last 2 years and helped the company grow, but has now become a raging drunk, etc.

Therefore, does anyone have any tips, or can point me in the right direction, or can recommend some good materials that might help me work out this part? Thanks
 
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CareCPA

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This is exactly what your lawyer should help you with. It sounds like you're going to use one anyway (and I always strongly recommend someone does if they are creating a business with multiple owners), so I would start there and see if either they can help, or if they have a referral for someone who does business valuations to help.
 
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