AboutRonald J. Cappuccio, J.D., LL.M.(Tax) Expertise I have extensive experience in negotiating emerging business contracts and agreements, joint ventures, limited laibility company buy-sell agreements and buying and selling businesses. My approach is from a legal, tax and business prospective gearing my negotiations to practical solutions rather than merely drafting impractical documents
Experience I have have been an attorney since 1976 emphasizing business and tax law issues. I am an adjunct law professor in negotiation and alternative dispute resolution.
Organizations American Bar Associtiation
New Jersey State Bar Association
Camden County Bar Association
Question QUESTION: Ron, I am currently in an LLC Partnership with my wife and he mother and father-in-law. The bus. relationship is 25/25/25/25. The in-laws are willing to let me buy them out. Our 50% would buy their 50%. Our business grosses 400K/yr, and we are basically a break even business and sometimes net $10K to $20K each year. We have about $50,000 in debt which is all in the father-in-laws name. What would be a fair buy out. He wants to sell his 50% for $125,000 paid over 5 years at 7.5% interest. He wants $2500/mo until it is paid off, $750/mo. to do what he is currently doing and at the same time retain control of the books/finances for 5 years. Is he smoking something or am I smoking something? Thank you.
ANSWER: Chad:
My first question is when you say "break-even" does that mean no distributions are made for work performed? If not, I must seriously question your father-in-law's valuation. I can understand his wanting to have the debt paid, but I cannot imagine his interest being worth much, and certainly not $125k. If he is being paid $750 a month currently, totaling $9.5k per year, his interest may be worth $40k - $50k. It makes sense for him to receive information until the debt is paid, but not control.
I think you should IMMEDIATELY speak with a good lawyer to determine your best action. The lawyer will want to see your LLC Operating Agreement, any employment contracts, and the business tax returns. You will have to address whether you are going to continue to work in the business.
Thank you for the good information. I was thinking I should probably get a good lawyer. When you say distributions made for work performed are you refering to my salary? I make about $5,000/mo to run the business and my wife gets $2,000/mo to do her part. My father and mother-in-law get $1,000/mo currently to do accounting/books/payroll/taxes. Also, how did you come up with $40k- $50k for his interest? Thank you!
Answer Chad:
I assumed the monthly payment was not directly related to services. I was estimating 48 months X $1k = $48k.
This is simply a rough guess. It seems that you and your wife do most of the work and take most of the income in salaries.
If you would like me to help you further, please call me at 856 665-2121
