How do we make an buy-out simple?
I am one of three directors (all of us are shareholders in the company), one of my fellow directors, the FD and minority shareholder has, after a period of ongoing dispute, requested that we buy him out of the business. Assuming this is the right thing to do how should we go about resolving this situation without causing any undue disruption to the business?
A. Jim Rogers of Grant Thornton writes:
The key thing you must do, and which you seem to have recognised, is to keep disruption to a minimum at what is almost certainly an emotional and stressful time. You must be careful to manage impact on staff, customers, suppliers and your bank while carefully ensuring the business continues to trade. You must also keep focus on running the business rather than dealing with the dispute – it’s important the business as a whole doesn’t suffer.
Replacing a vital member of the management team always needs a careful hand-over. You must remember that finding another FD may also take time, so you may need to make an interim appointment to minimise any disruption. Several companies offer interim or part-time services.
You may have an existing shareholders agreement, which may set out how the shares should be valued. If not, you will need to negotiate a price, which may be difficult if the dispute has become entrenched. It may be easier for both sides to use professional advisers to find a suitable solution. If a deal can’t be agreed, alternatives you may have to consider could include selling the business on the open market.
You also need to decide whether the business or other shareholders will fund the purchase of the shares. This will depend on, among other considerations, the ability of the firm to raise the necessary funds as quickly as possible.
You will almost certainly benefit from some tax planning advice, which may help to maximise the net proceeds received by the exiting party and reduce the overall cost to the business. All the above will most likely require legal agreements and so professional advice would protect everyone’s interests.
In summary you must carefully avoid the whole situation getting emotional. Appoint advisers to help manage the process and ensure that management does not take its eyes off running the business. Personal disputes can occur in any business scenario, but the key thing is to remain professional, focused and do what’s best for the long-term health of the business.