**Apologies for posting this in help needed, re-creating here as this seems like the most appropriate area**
Hi Everyone,
Im not sure if this is 100% the best place to be asking the question, but at the moment im wanting any help/info I can get.
A family member bought a fruit and veg shop with a friend and the friends husband over a year ago. The business is owned 40/40/20. My family member owns 40, her friend 40 and her friends husband 20. At the time she was very skeptical about going into a business, especially with a friend. She told her that after a year if she didnt like it or it wasnt for her would she be able to get out of it and her friend said yes. The family member has confronted her friend she the friend says she cannot buy her out etc etc and basically saying we are all stuck in this position and we can't get out. My family member has asked them to sell the business and just take a loss. But the friend and husband say no and to just deal with it and try and improve the business.
Ok, so now the family member is wanting to get out of the business, the business is performing poorly and she is not even guaranteed a weekly wage, and if it does come it is only $400.
The friend is very controlling and wants things done her way and says no to her ideas and even belittles her to the point of telling her she wraps things incorrectly etc. But I digress.
My family member has a loan of 70k for the business and a housing loan of 66k
My question is, how can my family member get out of the situation, remove her name completely off the business? She does not even mind leaving the 70k in the business and just leaving (with her name taken off everything). I might add that they have rented a shed at the back and her name is also on that lease. VERY STICK SITUATION!
Is she able to add the business loan onto her housing loan?
When she leaves she has a job lined up which will atleast give her a salary of $500 per week.
Is there a way out for her? with some or without the 70k she has put into the business.
Any feedback at all would be great!
Thanks Everyone
When you say business, what is the structure? Is there a company or is it a partnership or sole trader?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It's a partnership, my family memeber owns 40% and the other two 40 and 20%
It is a fruit and veg shop in a block of about 6 shops (all connected too each other)
if that helps.
In that case all names will be on title so any change in ownership would mean change in title – such as bank accounts, leases, contracts etc. It probably won't be easy to get a name off the lease as the landlord will need to reassess the ability of the remaining partners and would be unlikelly to release someone early if the business is going bad.
If they own the property then there will be similar issues such as redoing the loan and requalifying.
Stamp duty issues too and probably capital losses and or tax losses.
A partnership is very dangerous for these reasons. If the business goes down the landlord could come after each and all of the tenants (assuming all entered into the lease). Each person's other assets will be at risk.
Do they own the building or rent?
How long to go on the lease?Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
They don't own the building, just the business. The lease to the storage shed and shop is another 6 years.
Is the family memebers business loan able to go over onto say or home loan? If she was able to get out of the business. In other words take the loan with her and have her name taken off the leases and business. She says she doesn't mind just leaving the 70k in there.
Or is their no way out?
Apologies for the late reply, I have changed houses and have not yet got the internet connected.
Thanks a lot for the reply Terry, very much apreciated!
How is the business loan set up? What is the security? whose name is it in?
I think her only way out is to negoitate with the landlord to remove her from the lease. But this won't be easy. The landlord is unlikely to allow it easily.
She is in a binding contract so has to see it through.
Or, possibly the lease may not be binding if it was not set up correctly or if the landlord has breached it.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It is a split loan, the business cost 175k on total. So my family members loan is 70k and only pays interest on that amount. The security is the equite in her home. Her name is on the business loan (her70k) and the leases.
Sorry Terry, im probably not giving you sufficient information. This is just my understand of what is going on.
She is going to see the account this week, so hopefully she can find a solution.
Thanks again for your help
What about the other partners? did they contribute their own funds separately?
She needs to see a lawyer, the accountant can only help on the tax side of things.
My view is that she will be responsbile for 6 years rent (or the remaining term) for the whole amount, unless the other partners pay it. The partnership could be disolved but the contract will remain unless it is renegotiated.
Once she ceases the business then the interest on the $70k may no longer be deductible (this the accountant could help with), depending on her circumstances.
see TR 2004/4
Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities
http://law.ato.gov.au/pdf/pbr/tr2004-004.pdfTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes, seperately.
She wants to get out but the other partners want to stay in the business.
Thanks for all your help Terry, much appreciated! I will pass the info on.
Thanks again
exiting the partnership should be easy. The other partners would agree probably if she is just gifting them her 'share'. But the lease and any guarantees will be the hard point.
BTW there may also be CGT consequences with this – but she may end up which a capital loss which can be used to offset future capital gains.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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