lycanthrope1984
Nov 28, 2008, 12:32 AM
Hi, I am wondering if what my business associate proposed to me to be reasonable.
I'm planning to invest in a nightclub, which has been running for 2 years and the contract with the current landlord won't expire until 3.5 years later. After that, chances are we would still be able to rent and continue the business. For the sake of this question though, we will limit it to 3.5 years and that's it.
On the contract that I'm reviewing, one issue caught my attention and it claims this:
Selling of shares & Depreciation: Six months within the partnership, any selling of the shares will not be subject to depreciation, if the selling occurs after the first six months, and the buyer isn't A (my partner, the business owner), then B (me) agrees to sell the stocks at a 2% depreciation rate each month after.
For example, If I invest 1 million dollars, and after six months I decided I want out. According to this agreement, starting the 7th month when I sell, I can only sell it for 980,000, then 960,000 the next month, etc... Assuming that after 1 year I want out, I can only sell it at (6*2 = 12% of initial investmnet) 880,000.
When I asked why this existed, my partner claimed that it's for depreciation purposes. He said when the next person buys in, he will only have 2.5 years left, so that's why it must be depreciated.
Is this reasonable? From my standpoint not really, if it's losing money, then maybe. If it's making a reasonable amount of money, then I shouldn't have to discount anything.
Lastly, when asked if I can take out what I invested in, assuming 1 Million, when the business ends. The answer is no, if no one decides to buy us out and therefore we split the money based on shares/%, then we just sell whatever is in the club, and split that instead. The thing is, from my observations, the items in the club are so heavily depreciated, probably only 40,000$ is going to be generated as a result. Splitting that seems so pathetic. Is this reasonable as well?
I'm planning to invest in a nightclub, which has been running for 2 years and the contract with the current landlord won't expire until 3.5 years later. After that, chances are we would still be able to rent and continue the business. For the sake of this question though, we will limit it to 3.5 years and that's it.
On the contract that I'm reviewing, one issue caught my attention and it claims this:
Selling of shares & Depreciation: Six months within the partnership, any selling of the shares will not be subject to depreciation, if the selling occurs after the first six months, and the buyer isn't A (my partner, the business owner), then B (me) agrees to sell the stocks at a 2% depreciation rate each month after.
For example, If I invest 1 million dollars, and after six months I decided I want out. According to this agreement, starting the 7th month when I sell, I can only sell it for 980,000, then 960,000 the next month, etc... Assuming that after 1 year I want out, I can only sell it at (6*2 = 12% of initial investmnet) 880,000.
When I asked why this existed, my partner claimed that it's for depreciation purposes. He said when the next person buys in, he will only have 2.5 years left, so that's why it must be depreciated.
Is this reasonable? From my standpoint not really, if it's losing money, then maybe. If it's making a reasonable amount of money, then I shouldn't have to discount anything.
Lastly, when asked if I can take out what I invested in, assuming 1 Million, when the business ends. The answer is no, if no one decides to buy us out and therefore we split the money based on shares/%, then we just sell whatever is in the club, and split that instead. The thing is, from my observations, the items in the club are so heavily depreciated, probably only 40,000$ is going to be generated as a result. Splitting that seems so pathetic. Is this reasonable as well?