How to proceed with demanding business partner?
February 26, 2010 3:13 PM Subscribe
My business partner insists that I pay her a large sum of money though she has been absent from the business for a year. What type of legal counsel should I seek? Am I protected in any way?
My business partner left our business a year ago because of our frequent disagreements - mostly due to her lack of professionalism on the job, my considerable frustration with her and our struggling, not at all profitable business. She left more than willingly; she took her name off our bank account, gave me her keys and basically told me everything was my problem.
Right before she left, she informed me that she would be filing Chapter 13 bankruptcy. She had an enormous amount of accumulated debt, some from business expenses and most from personal expenses. She told me directly that she needed to file for bankruptcy so that her children would be able to get financial aid since she would not be able to pay for their college education.
A few months after she left, she insists I meet with our accountant to go over some paperwork. At the meeting she tells me that I am required to pay her $500 a month bankruptcy payments for the next five years because her initial investment into the business was $30,000. The meeting does not end well; I end up leaving and meeting with a lawyer who tells me that she is only entitled to half of the business's appraised value, which is essentially nothing (truly, we were in the hole BIG time at this point.)
Over the next year or so, the business becomes more successful. We are not making any sort of profit, but we are breaking even, beginning to pay back our debts, staying on top of our bills.
A week ago, I receive an email from business partner's daughter insisting that I am behind on the bankruptcy payments I promised a year ago. She tells me I "owe" $X + an additional $Y per month and that I need to repay immediately. I respond curtly, asking only for the information for her lawyer. The response I get is that I should just pay ex-business partner directly and if I am unable to pay, I should work out payment plans. Just received an email that said if I cannot pay, I should liquidate the business and halve the money from the sale.
I am absolutely going to seek the advice of a lawyer but I have a few questions first:
1a. Is my absent business partner entitled to her initial investment ($30,000), half of the business worth or much less since she has not contributed to the business's growth?
1b. When my partner left, we were behind in payroll, state and federal taxes as well as behind with some of our distributors. I have managed to pay them off in the past year. Would this work in my favor in any way?
2. Can she force me to liquidate the business assets?
3. What type of lawyer should I seek? What will my lawyer's advice likely be? I need to prepare financially for this, if the outcome might be unfavorable.
I can be reached at businesswreck@gmail.com
My business partner left our business a year ago because of our frequent disagreements - mostly due to her lack of professionalism on the job, my considerable frustration with her and our struggling, not at all profitable business. She left more than willingly; she took her name off our bank account, gave me her keys and basically told me everything was my problem.
Right before she left, she informed me that she would be filing Chapter 13 bankruptcy. She had an enormous amount of accumulated debt, some from business expenses and most from personal expenses. She told me directly that she needed to file for bankruptcy so that her children would be able to get financial aid since she would not be able to pay for their college education.
A few months after she left, she insists I meet with our accountant to go over some paperwork. At the meeting she tells me that I am required to pay her $500 a month bankruptcy payments for the next five years because her initial investment into the business was $30,000. The meeting does not end well; I end up leaving and meeting with a lawyer who tells me that she is only entitled to half of the business's appraised value, which is essentially nothing (truly, we were in the hole BIG time at this point.)
Over the next year or so, the business becomes more successful. We are not making any sort of profit, but we are breaking even, beginning to pay back our debts, staying on top of our bills.
A week ago, I receive an email from business partner's daughter insisting that I am behind on the bankruptcy payments I promised a year ago. She tells me I "owe" $X + an additional $Y per month and that I need to repay immediately. I respond curtly, asking only for the information for her lawyer. The response I get is that I should just pay ex-business partner directly and if I am unable to pay, I should work out payment plans. Just received an email that said if I cannot pay, I should liquidate the business and halve the money from the sale.
I am absolutely going to seek the advice of a lawyer but I have a few questions first:
1a. Is my absent business partner entitled to her initial investment ($30,000), half of the business worth or much less since she has not contributed to the business's growth?
1b. When my partner left, we were behind in payroll, state and federal taxes as well as behind with some of our distributors. I have managed to pay them off in the past year. Would this work in my favor in any way?
2. Can she force me to liquidate the business assets?
3. What type of lawyer should I seek? What will my lawyer's advice likely be? I need to prepare financially for this, if the outcome might be unfavorable.
I can be reached at businesswreck@gmail.com
There's absolutely no way to know without seeing the contracts (if any) that you and she signed. We can't help you.
posted by Chocolate Pickle at 3:17 PM on February 26, 2010 [1 favorite]
posted by Chocolate Pickle at 3:17 PM on February 26, 2010 [1 favorite]
Is my absent business partner entitled to her initial investment ($30,000)...
An investment is an "investment." It's not like a down payment. It comes with the risk of a business becoming profitable. It also comes with the risk of losing everything.
How was your business structured? LLC, S-corp, C-corp, Partnership? As above, there are too many unknowns to be able to answer your question(s) more directly.
posted by ericb at 3:22 PM on February 26, 2010
An investment is an "investment." It's not like a down payment. It comes with the risk of a business becoming profitable. It also comes with the risk of losing everything.
How was your business structured? LLC, S-corp, C-corp, Partnership? As above, there are too many unknowns to be able to answer your question(s) more directly.
posted by ericb at 3:22 PM on February 26, 2010
Yes, everyone is right that you need a lawyer.
But on a non-legal advice front:
I respond curtly, asking only for the information for her lawyer. The response I get is that I should just pay ex-business partner directly...
This set off my BS detector--don't let her bully you into giving her anything before you do see a lawyer.
posted by sallybrown at 3:34 PM on February 26, 2010 [13 favorites]
But on a non-legal advice front:
I respond curtly, asking only for the information for her lawyer. The response I get is that I should just pay ex-business partner directly...
This set off my BS detector--don't let her bully you into giving her anything before you do see a lawyer.
posted by sallybrown at 3:34 PM on February 26, 2010 [13 favorites]
Ironmouth is correct: You need to speak with a lawyer about these questions.
Any attempt to answer these questions without the relevant documents in front of the person doing the answering is irresponsible, at best, even if that person purports to be a lawyer or an accountant.
posted by dfriedman at 3:35 PM on February 26, 2010
Any attempt to answer these questions without the relevant documents in front of the person doing the answering is irresponsible, at best, even if that person purports to be a lawyer or an accountant.
posted by dfriedman at 3:35 PM on February 26, 2010
You need a lawyer, because the answer will likely depend on how the business was set up and what you two signed. In the meantime...
A week ago, I receive an email from business partner's daughter
If the daughter e-mails you again, I would respond asking if she is an attorney acting on behalf of the business partner. Remind her that otherwise, none of this is her business and ask her to refrain from contacting you in the future.
posted by spaltavian at 3:54 PM on February 26, 2010 [6 favorites]
A week ago, I receive an email from business partner's daughter
If the daughter e-mails you again, I would respond asking if she is an attorney acting on behalf of the business partner. Remind her that otherwise, none of this is her business and ask her to refrain from contacting you in the future.
posted by spaltavian at 3:54 PM on February 26, 2010 [6 favorites]
This sounds like a scam to me. Why would the daughter be contacting you instead of ex-"partner"?
This really all depends on what kind of agreement you originally entered into. If an attorney drew up/reviewed the paperwork on your behalf, I would start there.
posted by mmf at 3:58 PM on February 26, 2010
This really all depends on what kind of agreement you originally entered into. If an attorney drew up/reviewed the paperwork on your behalf, I would start there.
posted by mmf at 3:58 PM on February 26, 2010
As everyone has noted, you need a lawyer who can look through the actual paperwork, and understand the legalities of your jurisdiction, etc.
That said, from your description of the ex-partner and how she's handled things, it sounds to me like, were you liable for anything, it would have become obvious by now because she would have long since enforced any valid claims she had.
It sounds like, for the last year or so, she's been telling her daughter that you owe them money and, since the daughter's probably trying to go to college now and finding there's no money for it, she's trying to grab the lifeline she's been told was there for her.
It's kind of sad from her perspective, but I agree you need to insist that any further communications come through the ex-partner's attorney. Not that there is one, because she can't afford one, and it doesn't sound like something an attorney would take on contingency. In short, check with a lawyer, but this seems unlikely to rise above the level of annoyance.
posted by Naberius at 4:16 PM on February 26, 2010 [2 favorites]
That said, from your description of the ex-partner and how she's handled things, it sounds to me like, were you liable for anything, it would have become obvious by now because she would have long since enforced any valid claims she had.
It sounds like, for the last year or so, she's been telling her daughter that you owe them money and, since the daughter's probably trying to go to college now and finding there's no money for it, she's trying to grab the lifeline she's been told was there for her.
It's kind of sad from her perspective, but I agree you need to insist that any further communications come through the ex-partner's attorney. Not that there is one, because she can't afford one, and it doesn't sound like something an attorney would take on contingency. In short, check with a lawyer, but this seems unlikely to rise above the level of annoyance.
posted by Naberius at 4:16 PM on February 26, 2010 [2 favorites]
I'm not a lawyer and I'm not providing any legal advise, but I've been in situations similar to yours.
1. Regarding your questions: your attorney won't even be able to answer them right away. He or she will have to do lots of information intake before they will even have an idea of where you stand.
2. The ex partner asking for money sounds like a desperate hustle to me. As mentioned above, refer them to your attorney.
3. Most importantly, get all of your data, evidence and supporting material ready and presentable for your lawyer. That's really the most important thing you can do right now.
Everything that has ever been recorded regarding your business may be called into play, so be prepared for that.
Good luck, I hope you fare well with this!
posted by snsranch at 4:28 PM on February 26, 2010 [2 favorites]
1. Regarding your questions: your attorney won't even be able to answer them right away. He or she will have to do lots of information intake before they will even have an idea of where you stand.
2. The ex partner asking for money sounds like a desperate hustle to me. As mentioned above, refer them to your attorney.
3. Most importantly, get all of your data, evidence and supporting material ready and presentable for your lawyer. That's really the most important thing you can do right now.
Everything that has ever been recorded regarding your business may be called into play, so be prepared for that.
Good luck, I hope you fare well with this!
posted by snsranch at 4:28 PM on February 26, 2010 [2 favorites]
Oh, meant to add that you should refuse to have any converstaions w/ eithe the daughter or the ex-partner.
Direct them to speak to your attorney. So often that will get rid of nut cases all by itself.
posted by mmf at 4:47 PM on February 26, 2010 [1 favorite]
Direct them to speak to your attorney. So often that will get rid of nut cases all by itself.
posted by mmf at 4:47 PM on February 26, 2010 [1 favorite]
Not only do you need a lawyer but at this point you need to stop responding to her, her daughter, or anyone related or employed by her unless it's through an attorney. All incoming communications need to be directed to your lawyer. You need to not respond with ANYthing but "please direct all inquiries to my attorney."
The paper trail does not need to get any longer at this point.
Gut feeling is that it's going to depend a lot on how she dissolved her interest in the company, if at all, and if you've taken any profit distributions from the company, or just been paid a salary. It will also depend a lot on the nature of your operating agreement. but she's likely not owed the initial investment back since she quit when the chips were down. It's going to come down to how formally she quit and how formally your other arrangements were.
posted by disillusioned at 4:48 PM on February 26, 2010 [1 favorite]
The paper trail does not need to get any longer at this point.
Gut feeling is that it's going to depend a lot on how she dissolved her interest in the company, if at all, and if you've taken any profit distributions from the company, or just been paid a salary. It will also depend a lot on the nature of your operating agreement. but she's likely not owed the initial investment back since she quit when the chips were down. It's going to come down to how formally she quit and how formally your other arrangements were.
posted by disillusioned at 4:48 PM on February 26, 2010 [1 favorite]
A few (non-legal) thoughts I had when reading your question:
- A year ago, the partner filed for bankruptcy so she could send her kids to college. Now, one of the same kids is writing demand letters? I would take this seriously enough to see a lawyer, but not seriously enough to lose significant sleep. I would even wonder if the kid's mother knows what she's done.
- If it were me, I'd go back to the same lawyer. Surely s/he recommended during your first visit ways to formalize the end of the partnership, paperwork to draw up or forms to file, or something? It seem that it would have been logical to have taken some sort of formal action. At any rate, that lawyer is (hopefully?) already familiar with your company, the contracts, and so on.
posted by Houstonian at 4:50 PM on February 26, 2010
- A year ago, the partner filed for bankruptcy so she could send her kids to college. Now, one of the same kids is writing demand letters? I would take this seriously enough to see a lawyer, but not seriously enough to lose significant sleep. I would even wonder if the kid's mother knows what she's done.
- If it were me, I'd go back to the same lawyer. Surely s/he recommended during your first visit ways to formalize the end of the partnership, paperwork to draw up or forms to file, or something? It seem that it would have been logical to have taken some sort of formal action. At any rate, that lawyer is (hopefully?) already familiar with your company, the contracts, and so on.
posted by Houstonian at 4:50 PM on February 26, 2010
Not only do you need a lawyer but at this point you need to stop responding to her, her daughter, or anyone related or employed by her unless it's through an attorney. All incoming communications need to be directed to your lawyer. You need to not respond with ANYthing but "please direct all inquiries to my attorney."
Excellent point.
posted by Ironmouth at 5:31 PM on February 26, 2010
Excellent point.
posted by Ironmouth at 5:31 PM on February 26, 2010
In these situations I always find that the way to take my mind off the stress is to do basic yet productive tasks, like track down all the old contracts and paperwork. Simple goals to accomplish that will put your mind at ease and also help you and your lawyer be that much more prepared.
posted by infinitefloatingbrains at 5:39 PM on February 26, 2010
posted by infinitefloatingbrains at 5:39 PM on February 26, 2010
Information, not advice: The situation is complicated by the bankruptcy filing. If she had any cognizable interest in the business, it passed to the bankruptcy trustee at the time of the filing. She may no longer have any right to enforce.
Your lawyer should either be able to address the bankruptcy aspects of the issue, or consult with someone who can.
posted by megatherium at 6:22 PM on February 26, 2010
Your lawyer should either be able to address the bankruptcy aspects of the issue, or consult with someone who can.
posted by megatherium at 6:22 PM on February 26, 2010
In these situations I always find that the way to take my mind off the stress is to do basic yet productive tasks, like track down all the old contracts and paperwork.
Agree. And write down the undocumented stuff too, as a timeline, just to keep your head straight.
posted by desuetude at 6:22 PM on February 26, 2010
Agree. And write down the undocumented stuff too, as a timeline, just to keep your head straight.
posted by desuetude at 6:22 PM on February 26, 2010
Sounds to me like the mother lied to the daughter about some funds she was expecting from you and now that mother has not helped daughter, daughter is trying to get what she believes is hers.
I would do two things. One, I would not even acknowledge this woman and her daughter's existence. Two, I would get a lawyer who if necessary could acknowledge this woman enough to tell her to give it up.
posted by JohnnyGunn at 9:14 PM on February 26, 2010
I would do two things. One, I would not even acknowledge this woman and her daughter's existence. Two, I would get a lawyer who if necessary could acknowledge this woman enough to tell her to give it up.
posted by JohnnyGunn at 9:14 PM on February 26, 2010
Non-legal thoughts: When people go on fishing expeditions, they're usually pretty fast to throw serious letters from serious lawyers with serious information back in the water. When they pull out a fellow impulsive citizen, they're apt to keep putting the line in.
posted by smoke at 10:54 PM on February 26, 2010 [1 favorite]
posted by smoke at 10:54 PM on February 26, 2010 [1 favorite]
It sounds like, for the last year or so, she's been telling her daughter that you owe them money and, since the daughter's probably trying to go to college now and finding there's no money for it, she's trying to grab the lifeline she's been told was there for her.
I've known people who did things like this, personally - lie to their children (who may even be adults) to put their own failings on someone else's shoulders. It takes the children a long, long time to realize what's going on, until the ugly and painful truth becomes clear. Usually, it's the same kind of person that quits a partnership due to unprofessional conduct, etc.
I realize this is not truly advice, but more confirmation that no, you are not crazy, and yes, people like this DO exist out there. You're not alone.
posted by GJSchaller at 5:18 AM on February 27, 2010
I've known people who did things like this, personally - lie to their children (who may even be adults) to put their own failings on someone else's shoulders. It takes the children a long, long time to realize what's going on, until the ugly and painful truth becomes clear. Usually, it's the same kind of person that quits a partnership due to unprofessional conduct, etc.
I realize this is not truly advice, but more confirmation that no, you are not crazy, and yes, people like this DO exist out there. You're not alone.
posted by GJSchaller at 5:18 AM on February 27, 2010
If she had any cognizable interest in the business, it passed to the bankruptcy trustee at the time of the filing.
My understanding is similar. The bankruptcy process requires disclosure of assets and interests and if she DID disclose a partial ownership of your business you would have heard from the bankruptcy trustee and/or court already (or perhaps a bottom-feeder attorney firm trawling for clients). If she DOES have a partial interest in your business and she did NOT disclose this to the court ... well, that would be something I'd imagine the lawyer you hire would be interested in, as bankruptcy fraud is a federal offense. Something to think about, at least. (Do you even know if she actually filed? The idea that she needed to file to get financial aid is BS to me.)
Basically, though, you need a lawyer just to shut these people up and force them to assert whatever legal claims they believe they have through the law, rather than through threats.
posted by dhartung at 12:19 PM on February 27, 2010
My understanding is similar. The bankruptcy process requires disclosure of assets and interests and if she DID disclose a partial ownership of your business you would have heard from the bankruptcy trustee and/or court already (or perhaps a bottom-feeder attorney firm trawling for clients). If she DOES have a partial interest in your business and she did NOT disclose this to the court ... well, that would be something I'd imagine the lawyer you hire would be interested in, as bankruptcy fraud is a federal offense. Something to think about, at least. (Do you even know if she actually filed? The idea that she needed to file to get financial aid is BS to me.)
Basically, though, you need a lawyer just to shut these people up and force them to assert whatever legal claims they believe they have through the law, rather than through threats.
posted by dhartung at 12:19 PM on February 27, 2010
This thread is closed to new comments.
1b. When my partner left, we were behind in payroll, state and federal taxes as well as behind with some of our distributors. I have managed to pay them off in the past year. Would this work in my favor in any way?
2. Can she force me to liquidate the business assets?
3. What type of lawyer should I seek? What will my lawyer's advice likely be? I need to prepare financially for this, if the outcome might be unfavorable.
These questions are too fact-specific to be answered here. Seek an attorney specializing in small business to take care of this. If you are in Md, DC or VA, I can get you a referral.
posted by Ironmouth at 3:16 PM on February 26, 2010 [3 favorites]