Corporation Question: Partner Dispute

Question: My business partner and I are 50/50 owners of an S Corp. We divided the duties whereby he handles the outside sales and I handle the inside operations.

We started the biz 20 years ago or so. We purchased it from my family (3rd generation) at that time. Things were great until the economy hit and my partner felt obligated to move into my area (especially book keeping). Next thing I know, he started questioning all types of bills, checks and operational expenses...including my payroll, etc.

The good news is that the company remains tremendously profitable. It also provides a nice income for him and i (not to mention all of his kids whom we hired over the years).

Bottom line, I've had it with his bully-ish antics...disrespect...and one sided views. I'm a mellow guy and this isn't for me.

What is th best legal option for me at this point?

Buy him out or he buys you out. If you guys can't run the thing together anymore and neither wants to sell, judicial dissolution is about the only other thing you can do. You would then liquidate the company and distribute its assets to the stockholders pro rata (i.e., 50/50).

The real best solution is to come to an understanding on how things should be run. Do the bylaws say which officer should do what? I assume you two are the only directors. Since you can't get a majority for any director or shareholder action, you guys just have to suck it up and agree on how things will be done, one of you needs to sell out or you can dissolve the thing.

^thanks man. that helps.

yes, we are 50/50 owners and the only two directors of the corporation.

we do have a shareholders agreement, however no real corporate bylaws specifically outlining each of our duties. it was more of natural progression of duties which is perhaps part of the problem.

Well bylaws probably would have been very generally written anyhow... and ultimately the management of the company is up to the directors. With only two directors you are pretty much at an impasse if you guys can't agree on anything, assuming you haven't modified the state majority requirement. What state is it incorporated in anyhow?

What does the stockholders agreement provide for? Just transfer provisions like rights of first refusal, tag-along, drag-along, etc.? Or does it also talk about electing directors and such? There may be something in there about deadlock procedures such as selecting a neutral third party.

You could conceivably bring in a third person you both agree on as a director who could break any deadlocks. Personally I would find that dangerous and wouldn't want someone wielding that power in my company, but it is a thought.

If it really gets nasty talk to a local lawyer and basically come to the guy and say we are deadlocked and I see no way out other than to push for a dissolution and liquidation unless we can agree on how to run this thing. I would try to resolve it more amicably first of course.

I just can't imagine that this can't be solved amicably when the company is making everyone a lot of money. Normally shit only really hits the fan when no one is getting paid.

^i agree completely. childish imo.

it's an arizona corporation. i've reached out to him a few times however i'm getting the silent treatment.

he has asked that i sign an addendum to the shareholders agreement giving him certain rights over and above mine, which i haven't agreed to sign yet.

i think i will see a local attorney as he recently said "sign the form or you're fired". he's lost it.

Well I don't see how he can fire you if you guys are 50/50 and the only directors, barring some weird shit in your shareholders' agreement. Definitely do not sign anything until you consult a local attorney. Let me know if you want me to get you a referral.

Thanks for the information. It's truly appreciated. What you say is probably his dilemma, and perhaps the reason he's being such a dickhead.

I think that he wants me to sign this "addendum" to the shareholders agreement so that it will give him the unilateral capability to fire me.

Every time I say I need time to review it, he goes bananas.

I'm taking your attorney advice. I've worked with my own business attorney in the past who seems pretty good. If this type of thing isn't his forte', I'll let you know.

Thanks again though...

 read your docs and state law

Make sure you pay the attorney yourself, not the company. The attorney needs to represent you, not the company (that can be a huge distinction for us ethics wise in this type of situation).

No worries on the referral, it wouldn't help me. If you have a guy, all the better.

this thing gets crazier and crazier.

basicaly the meeting today had to do with a corporate line of credit that was used for non corporate expenses. it was also paid back by non corporate funds.

everything i brought up (factual) got an answer of "it doesn't matter".

bottom line, my partner said that he couldn't trust me and therefore wanted to begin a buy out clause (him buying me out).

he also said that he'd prefer that i take a leave of absence while we work through this (without pay).

i guess it's on!

 tell him youd prefer for him to suck on deez nutz

Tell him his trust doesn't matter; if he can't get over it, the company is going to end in dissolution & no one makes any money. Ask him point blank which is better - another 20 years of both of you making profit, or winning the battle over his piddly issues & losing the war?

^Note that this is regular "dealing with people" advice, not a legal opinion.

BarkLikeADog - ^Note that this is regular "dealing with people" advice, not a legal opinion.


It is the best advice though. I just can't stand the thought of some idiot destroying a profitable business over stupid ego issues. It is so hard to get a profitable business going, especially right now.

^ i completely agree however he can't get past shit and refuses to talk to me...at this point everything is going through our attorneys.

i think that he's got an alternative motive such as getting his family in the biz...etc.

in any event, it's unsettling to say the least as we begin the process.

thanks again for the information...it proved very helpful thus far!

Keep us updated. What has your attorney said?

my good friend went through this with his 50/50 partner who was his ex wife. they started it when married.

he tried to dissolve the biz.

she ended up tanking a 10 year old business with lawyers bills and not working.

**

hire an independent accountant to keep a microscope on the books. take steps to keep the books within your grasp. keep an eye on him registering another business with the state that will take over your existing customers. check with your customers to see if he's already servicing them under a different name or has alerted them to a spinoff company.

install hidden security cameras in the office. install keylogger software on the computers. back up all the data and keep it off site. prepare yourself to come the office to find that the locks are changed and the office cleaned out.

stephen

^Eh, I'm not so sure sinking a lot of money into security measures is any more worthwhile than sinking it into legal fees for this guy. Usually, the biggest part of what makes these kinds of companies work is the fact that those two guys are doing what they're doing; if that's not cookin' it's kinda irrelevant what happens after they part ways. Putting an effort into "stopping" the other guy at this point is just gonna build animosity & get them further from where they need to be.

Best thing he can do is to put all his efforts into mending the personal relationship with the expectation of complete failure for both parties otherwise.

If it were me, I'd take the guy out to lunch/dinner, reach out to him, explain my position in mellow guy terms - hey, this thing's falling apart; tell me how I can fix it for you, this is how you can fix it for me, etc. - & close with the end of the story: I brought my family business to you 20 years ago & it's still otherwise going great; let's fix it because if you fuck me over I will do everything in my power to do likewise.

Barring specific language in the original agreement, that's about all he can do realistically.

Fake Pie - Keep us updated. What has your attorney said?


basically same as what you have said (above). i'm the president and 50% owner of the company. it takes a majority to terminate (which my partner obviously can't get). i also am 50% owner / managing member of the llc. my attorney read shareholders and other docs and said "he sells, you sell, or you guys dissolve the thing".

of course he advised that we work it out, the problem however is that my partner has no interest in working it out.

i was willing to work away from the office while this shit simmers down (with pay of course) and found out i was locked out of my computer (remote access) and the locks had been changed.

my attorney wrote a letter basically claiming this should be "unwound" immediately. my partner has (of course) been unavailable for answer.

the whole thing is fucked: employees calling me asking wtf is up (i've missed less than 5 days in almost 20 years)...me not really being able to give them a clear answer...etc.

i've reached out to the guy multiple times to talk stuff through. he's stubborn and has not been in one relationship (business, wives, etc.) that's lasted. this is just one more i guess.

my friend was also sued by his ex for sexual harassment as they used to bang at the office. then she said no. she got a PPO against him. he could not work at his own office.

be prepared for the guy to get into a fight with you, then file a PPO against you.

it's best to be at the office cause he'll move you right out and give the employees his side of the story.

stephen