How should I handle a partnership agreement and business valuation dispute?
I need help and guidance to help maneuver through the dissolution of a partnership and company valuation:
About 3 years ago the business I started from scratch through sweat and tears began to experience cash flow problems due to slow payments from customers. To help with the problem I decided to partner with a friend for 25% share of the business.
We signed a partnership which stated that both partners were required to commit our full time efforts to the business and to participate in the daily activities of the business. It also stated that we were both responsible for bringing in new customers to grow the business.
As of today all the customers we have were bought into the business by me. He has never bought in any new customers. Throughout the years I have managed to keep all my original customers and have added new customers without any assistance from my partner. Additionally, throughout the partnership he maintained a full-time job outside the business while I worked the business full-time.
Problems in our partnership started because he was never available to assist even with simple tasks, and he did not bring in any new customers.
I invested over $200k of my own money to keep the business afloat, and to this day I have never been repaid these funds.
Shortly after the partnership started our customers paid their past due balances and I was able to get the business back on track . My partner stayed on but hardly participated in the business; and now he's requesting a buyout.
Based on his lack of efforts in helping to grow the business I don't feel that he deserves anything. Initially I was willing to give him back his initial investment of 20K, but that would put me further in debt. In the past 2 years he received payouts totaling $5k.
He has hired an attorney and they are requesting a payout of over $125k, which is totally ridiculous:
First, the business is in debt. Secondly, I don't think he deserves it. Thirdly, his attorney calculated the business valuation based on GROSS profits in the past year. They did not deduct COGS or operational expenses. The business valuation should have been calculated on Net profits (which at this point is zero).
I cannot afford to pay an attorney. Any advice given would be greatly appreciated. I feel like I am being bullied by his attorney. I feel that my partner strategically planned this which the hopes of gaining a big payday from his investment.
What can I do?