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Basic Training: Capital vs. Sweat Equity: What’s a Fair Buyout?

Basic Training: Capital vs. Sweat Equity: What’s a Fair Buyout?

By Nina Kaufman, Esq.

Q: I’m in a situation where one owner is an active “sweat equity” owner; the other is inactive but provides financial capital. I’m the sweat-equity owner who has put in the hours and grown the business, while the other has been gone for months at a time. I am now in the process of trying to buy out my business partner. He put $20,000 into the business and I am trying to figure out where to start on coming up with a fair number to buy him out. He seems to think $32,000 is the number, although we are just barely starting to turn a profit. Any suggestions? A: Whether $32,000 is a fair number depends on a number of factors: Whether you have a partnership agreement that sets out the method for valuing a partner’s interest upon exit (If so, follow that.) How businesses in your industry tend to be valued–$32,000 may be fair for a product-based business if you’re on the upswing and your partner relinquishes all rights to develop similar products, but…

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Nina Kaufman

Flying solo doesn’t have to mean going it alone.

I’m Nina Kaufman.

I know first-hand that running a knowledge-based service business has unique challenges. It’s so much easier when you have an advocate in your corner. Over the past 25 years, I’ve worked with thousands of New York business professionals who want a legal advisor to guide and support them as they navigate the business world.

With wide-ranging experience as a business attorney, strategist, and media authority, I bring the added power of a business lens to the legal issues my clients are facing.

And because I’ve been a business owner myself, I’ve lived through the soaring highs and devastating lows – like when my first law firm failed. So I understand what’s involved to serve great clients, detect business risks early and build a true legacy.

I can’t get those 12 years back. That’s why I have made it my mission to ensure that business professionals like you can become wise and discerning leaders, build a solid business, and live your best life.