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Let's say I have five investors, each owning 20% of a company that is worth $1,000,000. One investor wants to be bought out. So the other investors would, to maintain their equal proportion after the buyout, each pay $50,000 and hence would now have 25% of the company.

This makes sense to me. However, when the numbers are not equal, I am unsure how to figure out how much each person would pay.

For example, let's say:

  • Investor 1 owns 50%
  • Investor 2 owns 20%
  • Investor 3 owns 15%
  • Investor 4 owns 12%
  • Investor 5 owns 3%

Investor 2 wants to sell. If the company is worth $1,000,000, how would one calculate how much each investor would have to pay Investor 2 to keep their proportionate share in the company?

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1 Answer 1

up vote 3 down vote accepted

Let $S$ be the sum of the percentages controlled by the other investors. In this case, $S=0.8=80\%$.

For what Investor $1$ pays, calculate $$(200000)\frac{0.5}{S},$$ and similarly for the others. If you prefer, you can work with percentages. Investor $1$ pays $(200000)\frac{50}{80}$, Investor $3$ pays $(200000)\frac{15}{80}$, and so on.

So all of the quantities you calculated should be divided by $0.8$, or equivalently multiplied by $1.25$. The idea is that although your calculation gives the right proportions, the sum is only $160000$. To get it up to the required $200000$, you need to multiply each payment you calculated by $\frac{200000}{160000}$.

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