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How can I recalculate the value of the initial investment in our company?
I have been a silent partner in a company for about 15 years. Some of the partners kept adding money to the company with different amounts throughout the years and consider that as part of the initial capital when it comes to the distribution of the profits. I am insisting that it is not correct because the value of the initial investment should be different than the money that is added later (a basic principle when it comes to the value of shares over the years and the risk factor). My question is how do I go back and redo the calculations fairly?
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Wow. For others reading this, what a great example of why so many experts, including me, urge people to get it in writing. You need to go over this with an attorney. It might all be defined in the corporate papers (I hope). It's unusual for those additional investments to take place without definition of how much equity they represented. Normally even smaller companies tie ownership to shares, and then define how many shares when there is a new investment. It's hard to believe that information isn't written down in minutes somewhere. Are you a corporation? LLC? It's likely that these shares had to be defined for tax purposes. Maybe you're just not asking the right person. If there has been proper recording of percentage of ownership for each investment, then your share is a matter or calculating the math of shares and dilution. I'm also surprised you weren't forced to sign some things, as these other investments happened, because normally existing investors get to decide, with each new investment, whether or not they get to keep up with the investment to avoid dilution. But I'm not an attorney, so I can't give you legal advice. Tim
Tim Berry is the president of Palo Alto Software Inc., which produces the industry's leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.
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