Defending Higher Valuation To Employee

In the prior post, I failed to note that while the buy-in costs for a 10% portion of the business has risen from $60,000 to $90,000 so has the value of the stock held by the employee. Yes, we are asking him to pay more (based upon our new valuation approach), but his investment has also increased in value by 50% in the past two years as a result of this new valuation. In theory, if not in practice, the employee should be entitled to sell his initial 10% of stock back to the company for $90,000.

As for future valuations, the method to be used should be agreed upon in advance by both parties. One option is to offer a purchase discount to the employee, so while we may arrive at a specific value for the business, the employee may be entitled to purchase shares or portions at anywhere between a 10-50% discount. That would seem to be a reasonable approach to me!