Determining net worth when a partner leaves


2

I am leaving a partnership, and trying to determine my share so I can sign off.

The partnership was 80%/20%, with the 20% going to me. I am the programmer, he is the idea owner.

My partner calculated the net worth of the company as Assets - Liabilities.

Assets: computer and kiosk hardware of lets say $2000

Liabilities: Hosting/Domain fees + $4000 for programming in the form of 'capital infusion (loan)' = $4200

The net worth, as calculated by him, comes out to a negative number. This doesn't make sense to me. He seems to be calculating this as if I was an outsider giving him a loan in the form of programming. In which case I would owe him 20% of the net worth...

It seems to me my time should be calculated as an asset and not a liability. Is this the correct way of doing things?

The product is unfinished and he decided to replace me as the programmer, so I am leaving the partnership. Do my $4000 worth of $20/hr programming amount to 0 in the net worth since the program is unfinished?

Any advice appreciated

Partnerships

asked Feb 3 '12 at 15:34
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Vigrond
130 points
  • If you can't agree that your contributions were worth something, (he wants to give you nothing), then leave without signing or agreeing to anything. You still own 20% of the business and it might be worth something in the future. – Gary E 5 years ago
  • Make a counter-offer - make up your own proposal of what you think your contributions are worth. His position is absurd since you would have to pay him to leave... – Tim J 5 years ago
  • If he hasn't paid you for the work you did then you might still retain ownership of the code you wrote. It's not worth getting a lawyer involved since the amount is so little, but try to work out an arrangement and accept the fact that you may go to your grave as the 20% owner of a company worth nothing. – Tim J 5 years ago
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3 Answers


2

You are getting screwed. I was putting this in excel making a balance sheet for you till I realized there is an easier way. Basic accounting states

Assets = Liabilities + Owner's Equity ..... equation 1

=> Owner's Equity = Assets - Liabilities (just like your partner said)

First, lets look at the programming $4000. That's put as $4000 worth of assets ("intangible asset" account) and a $4000 liability ("accounts payable" account). Recall it has to balance, so from equation1, 4000=4000+0. Great.
[edit]: $4000 is the book value based on the agreement (hopefully written in a contract or even email). The market value could be more or less - you don't care because the debt owed by the partnership to you is on the book value.

That accounts payable is an account that captures all pending dues. Fast forward to today, the partnership appears to have a negative equity value on your balance sheet. This doesn't mean it's bankrupt yet because although you have nothing left, nothing is due "yet".

This would have been ok except that the entity to whom the partnership owes money - is you and you're demanding that the debt be paid. Usually LLCs/Corporations have shields that shield the owners' personal assets from company debts. That's not true for partnerships. Both you and your partner are ALSO personally liable to any/all debtors. So not only can you go after the partnership's assets, you can also go after his personal assets like car/house etc. Obviously, you will not sue yourself and you own him no debt - so you're in the clear. Search for partnership bankruptcy if you want.

If I were you, I'd talk to an attorney who is willing to work for a low flat fee (avoid) or share % of proceeds (preferred). But that's me. I would recommend an attorney!

If you DO want to take the peaceful route, you can write a letter to the small claims court along with all documented evidence (agreements, emails showing you both agreeing on things etc). Small claims courts deal with sub-$5000 issues.

Please get a lawyer so he doesn't screw others in the future and you stand for what is rightfully yours.

Good luck, we're here for any assistance. (but I'm not a lawyer!)

answered Feb 3 '12 at 18:00
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Sid
649 points

2

Very interesting...

Have you drawn the $4000 in cash. In case you have drawn it, he is entitled to add it.

If not, you are entitled to this $4000 if he including it in the net worth calculations. This is above what you are getting as a share (a negative number)

Secondly, it is based on a book value basis. If the firm has build any reputation, than goodwill should also be accounted for.

Thirdly, the unfinished program should be fairly valued and put in the assets side.

answered Feb 3 '12 at 23:01
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Natwar Lath
294 points
  • Natwar's got a point here. If you've already been paid for your time, the only other thing you could be owed for is your 20% share of the business. If the business is in the red (owes more than it has) then you may not be able to get anything out of it. But, yeah, the unfinished program has value too, and it needs to be included as an asset. Ideas are practically worthless. Time and effort is what makes the idea worth anything. – rbwhitaker 5 years ago
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1

It is fraud - especially as you seem to have nothing of value except hardware. What about the value of the software? Of the business? of the cash flow?

What he is calculating is "book value" without accounting for non-hard assets. I would just take the calculation and forward it to the advocate general for attempted fraud.

Do my $4000 worth of $20/hr programming amount to 0 in the net worth since the program is
unfinished?

Besides that you must a ba crappy programmer that should work serving burgers at McDonalds if your time is worth only UD 20 per hour (I charge signifivcantly more than 100, for cash, not shares), No. it is NOT worth nothing. Acutally if the company is not in the busines of loosing money, if your time is valud with USD 20 then - guess what - it should be worth MORE than that for the company.
answered Feb 3 '12 at 16:00
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Net Tecture
11 points
  • We've had many conflicts in this partnership, and no I do not consider myself a crappy programmer, but a crappy businessman - maybe -_-. ( I often seek opportunities for the challenge/experience/resume material). Anyways, I appreciate your advice. There is no way he's going to sign it if I say the company owes me even $2000. And I would really like to avoid legal hassles. – Vigrond 5 years ago
  • Well, you only have the freeedom you are willing to defend. You get ripped off. Asking for fairness is your job, not ours and not your paertners. "avoiding legal hassles" means you are a sheep ready to be abused. Talk to a lawyer, hit him, take what is yours. – Net Tecture 5 years ago
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