How can I dilute a business partner share?
Initial contributions outlined in operating agreement was that I pay the capital expense to start the company and that he puts in an equal value in labor. We are 50/50 in partnership but little did I know he was an alcoholic. Comes to work wasted and drinks during work hours. He comes and goes when he pleases. He hardly did the labor. I ended up doing the majority of the work to get our business started on top of contributing capital expense. Hes saying his contrition was putting in his 401k which is odd that I am not aware of since I did all the paperwork. Among further investigation and contacting the landlord, he never put in his 401k making him also a liar.
The deal deal breaker was that he then threatened to sue me because he thinks I'm stealing money...
He then pushed all the work on me trying to justify it by saying he's trying to teach me how to run the business by mysekf. While I'm doing almost all the work, he's on his phone all day and disappears randomly during work hours. I've been doing the bulk of the work for a long time now but enough is enough. How can I dilute his ownership or solve this toxic situation?
Partnership Business is a business set up by two or more people. This is different from a sole proprietorship business that is set up by just one person. Partnership business is also different from a company limited by share or limited by guarantee. A sole proprietorship business could agree to go into partnership with another sole proprietorship business. These two businesses will form partnership after consenting to go together. The agreed sharing formula of the business net worth will be as contained in the partnership agreement called "The deed of partnership" This document will contain the respective status of each partner. It will also contain the agreed sharing formula of the profit realizable from the business. For example, the sharing ratio of profit among the partners could be in the ratio 50 to 50. This means each partner will be entitled to 50% of the profit realizable from the business . If the partners now agreed to admit a third partner into the partnership, depending on the revised deed of partnership, each interest of the previous partners will be diluted to accommodate the third partner. The agreed sharing formula could now be in the ratio 40:30 :30. At every point, the total percentage of interest must be 100%. This percentage share interest would now be shared among the interested partners based on the agreed sharing formula. At every point when sharing interest is to be diluted, or shared, the deed of partnership must always be the guiding document. This document is drafted by a lawyer, and is notarized to make it a legal binding document. However, what determines the amount of interest of each partner holds in the business is determined by either the capital contribution into the business, or the level of involvement in running the business.
Hi Samuel, it is really unfortunate you are in this situation. This is not uncommon, I have had lots of clients come to me with similar questions.
The first thing for somebody in your situation is to contact a corporate attorney that has some litigators on his or her team. The attorney will probably review all your corporate documents and identify if there is any way to dilute your partner's shares, and/or if there is any buyout provision or shotgun clause, to see what your options are. Depending on how the corporate documents are drafted (and your corporate structure, as you did not specify if your company is a corporation, LLC, or other), the specific facts of your situation, and your willingness to spend additional money, you may have to file a court action.
DISCLAIMER | NO ATTORNEY-CLIENT RELATIONSHIP. The information provided above was provided for informational purposes only and does not constitute legal advice. Internet users, subscribers, and readers should not act upon the information on this comment, or decide not to act based upon the information on this comment, without first seeking appropriate professional counsel from an attorney licensed in the user's jurisdiction. The information contained in this comment shall not be construed as an offer to represent you, nor is it intended to create, nor shall the receipt of such information constitute, an attorney-client relationship. I hope that you will find the information informative and useful, and I would be delighted to speak with you to answer any questions you may have about my firm.