Memorandum Conundrum

November 10, 2005 10:05 AM

An agreement signed some time ago is now proving difficult to dissolve, due to loss of contact with the other person. If a 'Memorandum of Understanding' was signed and then the parties are no longer in contact, can one party dissolve the agreement/partnership without the consent of the other and re-start the business alone? Much more inside...

I am posting this on behalf of a friend with this business-oriented conundrum. Any advice would be much appreciated:

In 2000, while still in college, I developed a prototype for an ecommerce website and presented it to my Computers in Communication class (I still have the records). Upon graduation, I intended to start my own company based on the website concept.

In 2001, I moved to NY and posted an advertisement seeking a business partner who had the technological know-how to create an ecommerce website. An Indian ecommerce web guru contacted me - we soon formed a relationship and created a Memorandum of Understanding that we would own the company (but it was my concept, with my name) 50/50. He contributed ideas that I did not like at all, wanted to take company in a different direction, and also did not want to contribute any money while retaining 50% ownership. Don't get me wrong - he was a good guy and respectful of my ideas. But I did not like our arrangement and should have dissolved it right there. At the time, I was young and naive and sort of ignored whole situation and focused on getting a day job. We really didn't get any work done together, never put anything online. The only work that was completeed follows: I explained concept to him, I came up with logo designs, and name of company. The only thing he helped with was telling me how to buy a domain name and help draft the memorandum of understanding, which we had notarized, which explains that we each own 50% of (name of company) which is an eccommerce site designed to X(function of site).

Soon after we created and notarized the MOU, a lot of family/job changes occured, and I got wrapped up in those and ignored our company. I soon lost touch with my partner, and never pursued the company although I never forgot about the project.

Several years have gone by and I would now love to start this company ALONE. I worked for several years in marketing and promotions and now have a much better grasp on how to market the site, and realize I should have definitely retained full ownership of the site. All I needed to do was pay someone a few thousand dollars to create the website.

I emailed my partner at every email adress I could find on Google, including the ones I have on file, in the hopes of creating a peaceful dissolution of partnership. I called him at the phone number I have on record - the number has been disconnected. I have no idea where he is. I want to break our partnership, but I have no way to contact him. Can I start the site without him? What happens if it becomes successful and he sues me - does he still have rights? I just wanted to find out what I should do before I started the website - stop the mess before it starts. Should I go ahead and create site without first finding him? Or should I not do anything until I can track him down?

posted by DannyUKNYC to law & government (5 comments total)

It doesn't sound like you have any equity built up in the old company. Why don't you just abandon it and form and new company solo?
posted by peppermint22 at 10:39 AM on November 10, 2005

IANAL but it sounds like how the contract will be interpreted will be decided under state law - probably NY law from your description. Are you planning on using an attorney to set up your new business? If so, bring him or her the MOU. This is a difficult question to answer without an understanding of NY contract law and looking at the specific agreement.

But I agree with the first poster, it sounds like you may not actually have a "partnership" other than a form that both of you signed.

Did the MOU address the IP issues or dissolution? Did this other guy contribute anything? Money? Work? It sounds like he didn't do much, and you may not have to worry about him having any rights to your IP, but it would be worth paying an hour of attorney time to make sure if you want to definitively clear this up.
posted by birgitte at 11:52 AM on November 10, 2005

This is sort of tangential advice, but for what it's worth:

You need to talk to a lawyer. It's probably hard to imagine coughing up the fees to see a lawyer over this issue now, while your business is new and you have no profit, only increasing debt. But you're not paying to protect a no-profit, debt-ridden start-up. You're paying now to protect the profitable, high profile venture you might become. If, at that point, you end up owing your non-helpful, silent partner millions of dollars, you will seriously regret the $500 or $1000 you could have spent now to avoid the problem entirely.

As an added note, the lawyer may well be able to find your partner where you've failed. My parents lawyer was able to dig up a distant relative in Germany on demand, even though we had limited info for her (we weren't even sure of her current last name), and weren't able to reach her ourselves.
posted by jacquilynne at 12:14 PM on November 10, 2005

Start a new company. Talking to a lawyer won't help you. You can get all the legal advice in the world and take all the precautions you want but it won't prevent this guy from suing you down the line and potentially winning something off you in the future. There's no reason to even entertain that risk if the only asset of this "company" is the MOU. Play it safe and start from scratch. New name, domain name, etc. Even the old logo is off limits--he has rights to even this.
posted by nixerman at 6:44 PM on November 10, 2005

I agree 100% with nixerman. Start completely new, including domain and logo - even if they're the best thing for your company. Document in writing every attempt to contact the old partner, but the odds of him coming after you on the idea are probably remote at best. One question: did you actually incorporate the company and distribute stock? An MOU to do this isn't the same as actually making it happen. If you did, and he did not put up consideration for his 50% share of the stock, whether it was in cash for the filing fees, or an expressly stated understanding that his contribution was his ideas, than he really doesn't have a leg to stand on legally.

Also, if you haven't started the company solely out of fear that he could pop up again, than you may want to reconsider becoming an entreprenuer, since you will undoubtably run into these kinds of problems on a daily basis.

My advice is to go ahead and start the company now.
posted by marc1919 at 9:30 PM on November 10, 2005