Bad Business Partner Driving Me Nuts

January 2, 2006 3:08 PM

Two years ago I let a really good friend cheaply buy into a business I had started a couple years earlier with the agreement that we would split everything, work & profits, right down the middle. He is stubbornly refusing to do his share of the work yet wants to keep collecting 50% of the profits. What do I do?

Case in point I asked him 4 months ago to attend to a serious financial problem under his area of responsibility. The first time his response was appropriate. In the following months he simply ignored my polite inquiries. A half-dozen examples of this pattern come to my mind easily.

When I confront him he uses many redirection tactics all of which boil down to he simply will not do anything but what he feels like doing.

Also, he shows up to work between 10:30AM and 3PM daily, if he shows up and tails off early-ish. He spends unusual amounts of work time (business hours) away from the workplace not working or dedicating excessive amounts of time to one of his areas of responsibility, to the detriment of others that are probably less pleasant for him (such as dealing with clients) but are just as important. Each of us has "storefront" and "backoffice" responsibilities so the load is balanced.

I have tried approaching him nicely, I have tried approaching him rudely, I have tried leaving him alone, I have tried offering him many different means of coming to agreement or a compromise but the end result is stony silence, stubborn refusal to discuss anything in a serious way and me taking on more and more of his responsibilities for the same pay.

The business is my baby and my living and is otherwise doing well. This problem is negatively impacting it and is a serious shadow hanging over the business, me and my family. Please help!

posted by libertaduno to human relations (43 comments total)

Figure out what his half of the business is worth, buy him out, and say adios.

Get a laywer of course.
posted by ldenneau at 3:12 PM on January 2, 2006

Thanks, i have broached that with him. He either names a ridiculous figure that is not related to the real worth of the company (i calculate it regularly) but instead to some imaginary fantasy about what he would have made doing something else or he claims i am stuck with him for 3 more years (minimum).
posted by libertaduno at 3:16 PM on January 2, 2006

He's not being a good friend, so you don't need to be either. Get a lawyer, and kick him out. You won't be able to change his work habits, so you either need to give in to the unfairness of it all, or you need to get him out of the/your business.
posted by Kololo at 3:21 PM on January 2, 2006

Thanks, yeah the friendship is down the drain...

I am hesitant to find a solution via litigation since more likely than not it will be very expensive in time, money & energy.
posted by libertaduno at 3:27 PM on January 2, 2006

You stated you had an "agreement" about the work load. In writing? If not, you're probably screwed....... get a lawyer or live with it.
posted by HuronBob at 3:31 PM on January 2, 2006

What's your operating agreement say?

Your operating agreement (assuming, hopefully, that you have one) should outline exactly what's required to buy out the other member, grounds for litigation and other things like that. It should also state somewhere firmly the 50/50 deal.

If you don't have one, things get considerably more messy.

Are you a partnership? LLC? S- or C-Corp? These things don't have *too* much bearing on intra-partnership feuds, but your state might make a distinction when hearing your case. ("Manager" vs. "Member," perhaps.)

An operating agreement will be your best friend here.
posted by disillusioned at 3:33 PM on January 2, 2006

the agreement was via IM, phone and other unsigned, non-legal documents.

each of us has 50% ownership. I am listed as the CEO on the incorporation papers, he has a lesser title.
posted by libertaduno at 3:34 PM on January 2, 2006

its an LLC registered in Delaware.
posted by libertaduno at 3:39 PM on January 2, 2006

Are you at least documenting all of his slacking off?

[I am not a business owner, but] since you're the CEO, can you simply...fire him? Change the locks, put his gear in a box?

In any event, you will definitely need a lawyer like everyone's telling you. This guy is going to continue taking advantage of you as long as you allow him to -- and as you have not shown him any evidence that you're going to call him on his shit (i.e., make him eat some bitter yet nutritious consequences), he has no reason whatsoever to straighten up his act.

Get all your documentation together, no matter how meager, and lawyer up now, to find out what your options are.
posted by Gator at 3:40 PM on January 2, 2006

This answer is more for other people reading this thread, libertaduno, since it is too late to apply to your situation. Others have given you good advice; you need a lawyer.

But for others; If you go into business with someone, have signed legal documents detailing responsibilities and compensation. I don't care if you are going into business with your own brother, get the damn agreement on paper. In fact, it's probably even more important in those cases since without such an agreement you are much more likely to end up in a serious dispute with the other party. With a stranger, that sucks. With a good friend or family member, it both sucks and can ruin a relationship permanently.

Get It In Writing.
posted by Justinian at 3:41 PM on January 2, 2006

the agreement was via IM, phone and other unsigned, non-legal documents... each of us has 50% ownership

Then you lose. I've been in exactly your position: no partnership agreement, majority partner flaking out. I got extensive expensive legal advice, and it came down to this: pay him what he's asking, or quit, let him have the company, and start another - and be very careful not to "steal" any of what is then his company's intellectual or tangible property.

If you make clear to him that the company's name and property is all he'll own if he doesn't sell out to you at a price you can accept - that you're committed to no longer being in business with him, and that he'll have to take over all the work if he wants to keep the company going and monetize the company's client relationships - then his price should come down. But if it doesn't, you have to bite the bullet, or pull the trigger.

Also (on preview), what Gator and Justinian said.
posted by nicwolff at 3:47 PM on January 2, 2006

Thanks, yes i have documented his actions very completely.

I'm aware of the lawyer option, I guess I was hoping someone could suggest a way to get through to this guy somehow so i could avoid getting nasty or continuing to route around him.

Firing him would be inconvenient since he performs 1 responsibility that I geographically can not at this time.
posted by libertaduno at 3:49 PM on January 2, 2006

There's no hope of getting through to this bozo. He obviously abused your friendship as an opportunity to ride someone else's gravytrain.
At the outset, you say you let him cheaply buy in. This implies that he actually has a small financial stake. This, along with you being CEO, should make his dismissal do-able. Definitely consult with a lawyer about how best to do this.
As for the one responsibility he performs...any chance you can afford to hire someone to take on that task? Perhaps someone actually in that geographical area?
Bottom line is, the schmuck has to go.
posted by Thorzdad at 4:00 PM on January 2, 2006

Presumably you could fire him. (On preview, what others have said, but keep reading.) That at least gets him out of the workspace, relieves the company of the burden of his salary, and leaves you in a position to hire someone who would actually do the work.

If your income from the business is based on profit-share, switch it to salary. Reinvest all profits in the company. He can't force you to pay him anything. You say you have no paperwork to prove his obligations to the company or the company's obligations to him; if that's the case, neither does he.

Give him a while to realise that while he may own 50% of your business, the only way he's ever going to get another cent out of it is to sell it. And given those conditions, nobody but you is likely to make him a decent offer for it.

Talk to an employment lawyer before you do anything. I am not a lawyer but I have run a company, albeit in the UK.

Be ruthless.
posted by Hogshead at 4:05 PM on January 2, 2006

Thanks, yes i could easily hire someone to take care of that area.

I'm leaving that as a last recourse tho since i would have to revoke his access privileges in a bunch of places simultaneously, revoke financial instruments, and otherwise lock him out.

It would be a considerable amount of work, not to mention harsh, so i am leaving that as a last recourse.
posted by libertaduno at 4:07 PM on January 2, 2006

Thanks, yes right now we pay ourselves a fixed salary, always have.
posted by libertaduno at 4:09 PM on January 2, 2006

Assuming you want the business to be successful (it's probably important to note that there can be several reasons why you may not want it to be at this point), I would offer the following.
Identify what he is willing to do that is a positive for the business, ideally in a discussion with him. For the tasks he's unwilling/incapable of doing, hire someone to do those. If possible have that person report to you. The person's salary should be operating expense, so the burden should be spread equally between the both of you.

I don't think there's a magical way of getting him to do the work he doesn't want to do. Especially if you can't fire him. So you have to deal with what he is willing to do.

An alternative would be to give him more responsibility and be prepared for things to go South if he doesn't pick things up, but that approach is if you feel that terminating the partnership is more important that the success of the business.
posted by forforf at 4:10 PM on January 2, 2006

I'm leaving that as a last recourse tho since i would have to revoke his access privileges in a bunch of places simultaneously, revoke financial instruments, and otherwise lock him out.
It would be a considerable amount of work, not to mention harsh, so i am leaving that as a last recourse.

Sounds to me that you are already at the point of last recourse.
posted by Thorzdad at 4:12 PM on January 2, 2006

I think you should also consider the very real possibility that he might already have, or be thinking about, lawyering up his own self. He knows you're not happy with the situation as it currently stands. He might be getting ready for a fight. One of the things to think about when you're talking to your lawyer would be what, if any, documentation he (your partner) might scrape together regarding you.

Be ready.
posted by Gator at 4:13 PM on January 2, 2006

Thanks, I have put 3.5 yrs of 14 hour days 6 days a week no vacations into the company and the outlook is really rosy, so i would love for things to continue but i have a strong objection to being a parasite host for a particularly nasty bug...

I like your idea of hiring someone, I'm going to work on that.

I have tried negotiating more responsibilities with him as well as simply leading by example and taking on new responsibilities myself while suggesting things "we" (read: he) might want to do, but the response, when not silent, is simply inaction.
posted by libertaduno at 4:18 PM on January 2, 2006

Good point Gator, thanks, I will work on that.
posted by libertaduno at 4:20 PM on January 2, 2006

Yeah his brother is a lawyer so he has me at a small disadvantage there.
posted by libertaduno at 4:27 PM on January 2, 2006

Just a warning: if this person is more than a mere jerk, but has actually become a raging asshole, he may be preparing to screw you in several different agonizing ways.

I'm serious. I've seen similar passive-aggressive behavior mutate into full-on sabotage.

...as in, selling company assets to competitors sabotage. You really really really need to think very very seriously about completely terminating this persons involvement with your business. Not a little at a time, but all at once with no recourse.

And that means a solid bit of lawyering, unfortunately.

One avenue you might try, alluded to previously, would be to imply that you are interested in terminating the business entirely. This might motivate him to get out while the getting is good -- whereupon (after appropriate lawyering) you could turn around and keep the business operational. This little trick might risk the health of your business, however, if anyone else gets wind of the "impending closure" and thinks it's real.
posted by aramaic at 4:39 PM on January 2, 2006

At a suggestion, have a third party, a mutual friend, sit you two down. I'm sure you're right, but you're also only putting some of the information on the table.

If it goes through lawyers, it'll get ugly.

Some creative accounting (via a good accountant) might put any lawyer's fees ahead of profit, and the 'lesser title,' but in the province of the CEO (so, you get paid, he doesn't, and it's all 'official' as it's company policy). Something like end workers, not management get paid, then demote people.

Is he on the incorporation papers? Yeah, a lawyer will absolutlely let you know where you stand...heed his advice and consult with him tomorrow!
posted by filmgeek at 4:51 PM on January 2, 2006

Where are you? I'm an employment lawyer.
posted by Ironmouth at 4:56 PM on January 2, 2006

I can tell you're torn up about this, libertaduno. So even though I don't have a good answer for you let me say you're doing the right thing. The guy's decided to be a bum and not contribute to the business. You say the business is doing well. The only thing you can do now is to sever the business relationship, hopefully keeping the business itself intact. You will need a lawyer to do this. And get over how harsh that sounds; your "friend" blew it years ago when he stopped doing his half of the work.

I have a friend who was in your position. He felt bad about it and didn't want to be the "bad guy" and never did anything, letting his "friend" skate by without working for years. The problem only gets worse over time.
posted by Nelson at 4:59 PM on January 2, 2006

So his brother is a lawyer. Get a better one.

It comes down to this: you can't control your partner's behavior, but you can control how it affects your business. Consult with a really good lawyer and find the most appropriate way to get him out without the opportunity for retaliation.

It's his choice to not work and he has no incentive to start. Stop feeding him with your life's work.
posted by plinth at 5:00 PM on January 2, 2006

Ah sorry I didn't notice one of your comments - there is a difference in your situation now and mine ten years ago: you're a Delaware LLC and we're a New York S-corp. That mitigates my certainty that you can't just fire him, but as half the company couldn't he just re-hire himself?
posted by nicwolff at 5:00 PM on January 2, 2006

yes he is listed as legally one of the owners.

the arbitration by a mutual friend idea is a really good one.

I suspect that for practical purpose neither one of us can take significant actions such as firing the other without consensus from both of us, since neither of us have a majority ownership (we each own exactly 50%).

thanks all for your support and advice, i really appreciate it.
posted by libertaduno at 5:06 PM on January 2, 2006

If you do go with arbitration, make sure you follow Justinian's advice and get everything in writing. Keep a record of the meeting, any terms discussed, and if you manage to come to any agreements, Get. Them. In. Writing. With Signatures. Do NOT fall for the old, "What, you don't TRUST me?" ploy. Because, seriously, based on what you've told us, this guy believes that you will always pick up the slack for him no matter how much he screws around, no matter what his responsibilities are.

I can't help but think that you've already gone above and beyond all reasonable attempts to get him to come around, but I can understand your reluctance to bring lawyers into it. Sadly, I think that's where it's going to end up, though.

Let us know how you're doing, and good luck to you.
posted by Gator at 5:16 PM on January 2, 2006

I've seen people (one in particular, is something of a serial company rapist) pull a lot of questionable stunts when companies are on the rocks. Mostly, they involve bleeding assets out of the company before the baliffs come knocking.

I am guessing that the company telephone number and domain name might be better off in your hands right now? I'm not going to suggest anything, but a lawyer with experience in this area might help you transfer title of enough company assets that, if the worst comes to the worst, there's only fairy gold to fight over.

Sounds like a nasty situation, though, and I wish you all the best. You've been too trusting up until now, it's time to start looking out for yourself.
posted by Leon at 6:08 PM on January 2, 2006

Does anyone have resources for "getting an agreement in writng?" I've looked for examples of business agreements between two people but have come up with very few that are written in a way that I can modify them to meet my business needs. Preferably, I'd like to do such agreements without paying a lawyer's fees.
posted by camworld at 6:08 PM on January 2, 2006

If you are an LLC is he listed on the tax forms as a member? This is critical. Membership is the legal way of dividing an LLC. If he's not a member you are golden despite any verbal agreements.
posted by Xurando at 8:20 PM on January 2, 2006

You know... Xurando has a good point. If you don't have anything legal written down saying what this guy's responsibilities are, you likely don't have anything legal written down saying he has 50% of the company.

Does anything, anywhere say this deadbeat is your partner?
posted by Justinian at 8:37 PM on January 2, 2006

Arbitration is a good idea but I'd suggest hiring a professional rather than going through a friend. You don't want to drag a friend through our muck, your friend may be perceived at some point as less than neutral and, frankly, it's not as easy a job as it seems.

Also, it's worth hiring a lawyer whichever route you take, but be wary of their advice. Lawyers tend to focus on what you're entitled to and what you can do to your "opponent." An arbitrator will look for a mutually beneficial solution.
posted by zanni at 9:49 PM on January 2, 2006

Is there a buy/sell agreement in your corporate paperwork?

If you had a good lawyer when you were starting up, there should be something that keeps him from naming unreasonable prices, unless he's willing to buy you out instead, at that same unreasonable price.
posted by I Love Tacos at 11:15 PM on January 2, 2006

I've often heard of a partnership dissolution plan like this: If Party A wants to take over he can offer what he feels reasonable to buy out Party B. If Party B doesn't accept the deal then Party B is obligated to buy out Party A for the amount offered. I guess it can work in reverse too. It's a good strategy at least.
posted by muddylemon at 11:38 PM on January 2, 2006

cam: Nolo has several things online and in books about business, such as Ten Tips for Making Solid Business Agreements. They have books chock full of standard or easily-modified forms for numerous situations.

So his brother is a lawyer. Get a better one.

Yup. Ten to one his brother is only a tolerable lawyer, or does personal injury or other such high gain / low work types of law. With just a little bit of asking around you can probably find a lawyer who can run circles around this guy's brother.

But get that lawyer. Even if you don't end up litigating, he'll tell you what's important to do. If your work these last years has been worth anything, he'll be worth his weight in gold to you. You can arbitrate through a lawyer, or have your lawyer and his lawyer agree on an arbitrator; that's not a mutually exclusive choice.
posted by dhartung at 11:42 PM on January 2, 2006

Thanks everyone. Lots of useful suggestions. I really appreciate your help.

I am fairly sure he is on the LLC formation documents but will verify that.
posted by libertaduno at 5:40 AM on January 3, 2006

Is it possible for you to re-balance the pay? Ownership gives him 1/2 the assets and profit, but his salary should reflect the work accomplished.

A heart to heart chat about the needs of the business may help, if he is behaving sincerely, i.e., not being a complete jerk. It's important for you to do a lot of listening; he may have some grievances piled up. Arbitration is a good idea.
posted by theora55 at 6:44 AM on January 3, 2006

thanks, unfortunately he stonewalls all attempts to discuss the matter, and refuses to give up anything or take any positive actions.

An attempt I initiated several months ago to collaboratively come up with a written division of tasks, well he made a complete 5th-grade mockery of that when he finally looked at it.

Since his experience level is less than mine I am sure he feels that I am bossy at times.
posted by libertaduno at 7:02 AM on January 3, 2006

Is the amount of profit that he gets worth the expense of going through litigation and dissolution of the company at this point?

I guess another option is to find a buyer who is willing to pay something for the company. If you get the market price of the company it may help in legal settlements even if you don't actually sell it to someone else. That could be a bargaining point for what you could offer to buy him out.
posted by JJ86 at 3:56 PM on January 3, 2006

can you start investing, (buying equipment and such) all the "profits" so that there is nothing for either of you to collect, at least for a while.

Seriously, get an accountant because I'm not one, then get a lawyer.
posted by bilabial at 4:06 PM on January 3, 2006