Partnership gone wrong

Discussion in 'Growing and Managing a Business' started by Caminske, Jun 30, 2012.

  1. Caminske

    Caminske
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    Hi All,

    Could really use some assistance right now. I started a LLC with two other partners to start a website. My best friend and i had the idea and went to someone who i thought was a family friend and he offered to pay for the site. We never developed an operating agreement and this partner has not contributed anything else besides the start up cash. We recently ran into differences that cannot be rectified. We offered to buy our partner for all of his expenses, which is only $500, but he is demanding $15,000. Is there anyway I can get him out without going through court?

    Thanks for your help.
     
  2. Fergal

    Fergal
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    Does the investor agree that all he contributed was the $500 start up funding, or is he of the opinion that he had other inputs, perhaps such as his advice or expertise?

    What has he said to back-up / justify his claim for $15,000?
     
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  3. patrick0001

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    Few question, how much the website and business worth? if you 100% give up the business what is the risk? how about the cost and effort to setup a new business? Next, if you offer to sell all your share, are you getting same amount of $15000?

    During meeting, do you contact company secretarial to join the meeting? Anyone record meeting agenda? (The minute report can be use for legal advise.)

    There is no mutual agreement within partner, logically 3 partners is share the business profit and loss equally. If we cant solve the business problem, it is better to give up and rebuilt. Business is an ongoing process, have to make decision fast. time = money.
     
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  4. Caminske

    Caminske
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    He believes that he brings expertise ad well. He has several other small business and really has not out forth much effort into this project.

    The business is worth nothing right now. We just launched the site a few weeks ago and haven't had any substantial activity. I've been working with a web developer (who is an employee of his) for several months testing the functionality and working through the changes. I have back up emails and recorded our first conversation of us presenting him our idea.
     
  5. Jerlene

    Jerlene
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    I would say threaten him with going to court. He seems like he is hard up for cash and will probably back down and settle. If not, go to court. The judge will more than likely judge in your favour and you will only have to pay him the start-up cash and maybe a little extra cash.
     
  6. sayitproud

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    It sounds like he is just making up this $15,000 number out of thin air. I think Jerlene may be right. If this is serious and you need him out and he refuses to back down, you may have no option but to at least threaten court.
     
  7. fashionjewelry

    fashionjewelry
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    Friends should not appear money big problem or it will hurt the feelings
     
  8. Fergal

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    If that's true maybe you should consider walking away with nothing, if the business is worth nothing you won't be losing anything and you could save yourself a lot of stress and aggravation. Obviously I don't know what potential the business has, and that is something you would need to seriously consider before walking away.

    Is there not a little bit of a contradiction between those two sentences? If he has been paying a web developer to work with you for all that time, that's a big commitment and expense on his part. Are you sure that you are not underestimating the input that this investor has put into the business?
     
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  9. Caminske

    Caminske
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    I don't believe so. The commitment is on my part Who has out in all this time. He has simply put up the start up cash and for the most part backed away. The business is currently worth nothing, however that has most website start. Until we see how the public reacts we will not have any insight into its potential worth.
     
  10. ArcSine

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    Agreeing with Fergal and Patrick here; what prevents you and your friend from exiting the partnership yourselves, and rebuilding a new one sans the blockhead? You have no operating agreement to comply with regarding exit restrictions, and no non-compete agreement. Assuming the start-up costs are similar as with the first time ($500), you could easily scare that up from friendlier sources.

    Your heretofore time investment won't be wasted, as it'll translate to valuable experience in the new start up.

    If the blockhead imagines that his 1/3 share is worth 15K, he'll be thrilled to be handed the keys and the title to a $45K biz ;)
     
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  11. Business Attorney

    Business Attorney
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    You should first understand what the members' rights and obligations are under your own state law. If you had no operating agreement, does his $500 entitle to him to one third of the company? If not, what do you have to support your deal? An operating agreement does not necessarily have to be a nicely drafted legal document. It can be a series of emails or even an oral agreement.

    Also, don't assume that just because there is not a written non-compete agreement that you can simply walk away and start the business over again. First, members may have fiduciary duties to each other under state law. Also, abandoning the LLC does not necessarily mean that you can use any intellectual property (including trade secrets, programming or other proprietary rights). You could find yourself defending a lawsuit.

    The amounts involved are probably not enough for either of you to justify going to court. The best thing is to keep working on a mutually satisfactory (or more likely a mutually unsatisfactory) resolution.
     
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  12. Caminske

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    Even if we can prove that intellectual property is our own and not his?

    In regards to the fidiciary rights, he actually went into my godaddy account and took down the website. Therefore hurting the company and it's reputation. Isn't he not living up to his fidiciary responsibilities?
     
  13. Caminske

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    He is refusing to accept his monetary contribution for buyout. Is there anyway to enforce this?
     
  14. Caminske

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    Just to give a quick summary

    We approached the business partner with our idea who on a recorded conversation stated that he would handle "all the expenses"
    We agreed to start an LLC and split the company 3 ways
    After we finally got the site running he stated that he would no longer be responsible for all the expenses and would expect to split it three ways going forward
    We then stated that we would like to buy him out
    He then proceeded to go into my godaddy account and take down our website
    Now he will not put the website back up unless we pay him 20 times the amount of what he originally invested

    What are my options? Also we have no operating agreement
     
  15. Put it in an envelope and have it sent with a courier. Include a letter explaining that it is his return on investment. The company is worth nothing, so his money has not accrued interest. Make sure they record that he signs for it when delivered because when he signs for it you know he at least has it. If/when he cashes it, you will get a copy of the cashed check. And it's over.
     
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  16. StarBC

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    Can you prove that he invested no more than $500? May be bank statements or receipts or something else? Did you pay any compensation to his employee-web developer?
     
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  17. Fergal

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    Sounds like it might be time to walk away Caminske, give nothing and take nothing. Put it down to experience and move on. How does that option sound to you?
     
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  18. ChrisDouthit

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    I had a fall out with my first start up with a friend. We were still friends, just he was not working on the site like I had hopped and decided it would be better to do this all myself. I just left the company and started doing the same thing under a new company name.

    If the company already has value, you may want to just take your friend to small claims court and sue him for breach of contract even if it was a verbal contract. He may then just setting with you for something fair.
     
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