I got some reader questions this week. While I normally don't respond (it's not that I don't want to help, but I don't like giving advice to someone whose laws may be different), I thought I could perhaps give general advice to situations like these.
I will caveat that my law license is limited to just North Carolina. However, I hope to give some general principles that can help:
"I just recently opened up a company but the amount of problems and arguments that I am having with my business partner is unbelievable. We are always arguing, during working hours she will just sit there going on about things that are not even necessary, wasting time and money and she will complain over the smallest thing. She has asked me to buy her out but she wants way more money than she actually put in to opening the company--which I am not agreeing to. The company has not even made that amount of money as yet so I don't know what to do. I can not work with the lady anymore ,its come to a stage where I don't even want to work myself but its my company so I am going to have to find a solution to this matter SO CAN I PLEASE GET SOME ADVICE ON WHAT TO DO?"
Unfortunately, your problem is one of the most common. You've not told me whether you are equal partners, or whether there is some unequal distribution of ownership. You've also not told me if your contributions were equal and in-kind (i.e., did you each put in the same amount of money? Or is she putting in money, and you're putting in sweat-equity?). Finally, you've not said if you have a written agreement (though I guess not).
Knowing so little about your situation, at least let me throw an idea your way that I talked about in my last blog: offer a buy/sell deal (see previous blog entry from July 26).
In other words: go to your partner, let her know that you appreciate things need to be resolved one way or another. Then make the offer I discussed in my last blog, and put the ball back in your partner's court.
1. Tell her that one partner should by the other out.
2. Tell her that you'll give her the choice: either you can set the value for the whole business, and then she can decide whether she wants to buy or sell at that value; or she can set the value, and you get to decide whether to buy or sell.
This works even if you're not equal partners (e.g., if you're 60/40, for example, the value would be set at the price for the whole company (assume your partner set value as $100,000), and then you'd decide whether to buy the partner out for $40,000, or sell to her for $60,000.
Here's the good thing that I gathered from your scenario: you're early on in this business relationship. What would be more difficult is if, three years from now, you were wildly successful (no thanks to your partner), and she wanted to be bought out--in essence, getting paid for the equity you created in the company. At this stage, however, you've not turned a profit yet. Also, you know she wants out. Most likely, if she has any sense, she'll let you choose the price of the company. Be sensible, and don't go too low, or she may buy you out. If, however, she wants to set the price of the company--then let her. After all, if she really does think it's worth so much, she may make you an offer that will financially reward you!
Hope this helps.
Here is one very similar:
A scenario for you:
My partner came up to me and said it would be a good idea to open a shop in
the area [certain medical equipment]. I agreed.
So I found the location, came up with the business name, discussed things
with real estate agents, distributers, employed staff etc etc.
My partner has done minimal work, much to my frustration.
Thus we have decided that one should buy the other out due to this and
we cant see eye to eye on decisions.
We have a lease for 18 months.
The shop isn't open yet and therefore no stock purchased.
We have put in $X each.
Does one just pay the other that $X back?
Do we get more than that from the other because I did more than my partner
or that it was his initial instigation not mine?
Does this count at all?
Do we just work out a number randomly?"
Ok, lots of good questions here. First, my usual disclaimer is that your jurisdiction (while another common law country) is not the same as mine, so remember that my free advice MAY be just worth what you've paid for it!
That being said, let me take care of the biggest question: since you're equal owners, unless your courts are different than ours, you'll be unlikely to get paid more for your share than your partner's. Sorry. The good news though, is, like the other reader, you didn't get too far into the relationship before realizing its inequalities.
I'm going to give you very similar advice to what I gave the other reader, with a few additional opening questions:
1. First, are you enjoying this business? I.e., would you want to continue it if you could buy your partner out?
2. Second, can you afford to continue the business?
It sounds to me as if, now that the ball is rolling, you'd like to try and make a go at it if you could.
3. Is it more likely that your partner would just like to be bought out and leave?
If so, offering your partner his initial start-up money might buy him out.
If you're not sure as to question number 3, then you might want to make your partner the offer I suggested to the first reader:
Offer them a buy/sell workout. One of you sets the price, the other gets to choose whether to buy or sell at that price. In my mind, the best thing in the world that could happen to you (or the reader above) is that your partner would want to set the price. In such situations, the partner (who truly wants to be bought out anyway), could set the price so high in their greed that you'd rather take a buyout, and start a new business.
But considering that your partner will be scared of this happening, he'll most likely ask you to make the price. Unfortunately, then, you've got a hard decision. Probably, in your mind there's one price you think HE should be bought out at (a low price), and a different price that YOU'D be content with being bought out at (the high price). The buy/sell price you make, will likely need to be somewhere in between.
The best advice I can give you for the price you set is not really legal advice--it's more practical. Set a price, and then make yourself comfortable--before offering it--that, come what may, you'll be happy with the results. Think of all the benefits you'll get if you can buy your partner out. But then think of the freedom you'll have if your partner buys you out and you go your own way (perhaps you can start your own business now, or take a regular job with shorter hours, etc.).
Finally, there is a legal consideration. As part of this buy/sell deal that I suggest you offer your client, you need to agree, as part of the deal (before either of you makes a decision), that the BUYING partner will take over the lease and all partnership obligations and indemnify the SELLING partner from any liability therefrom. Even better, if at all feasible, see if the landlord will be willing to release the SELLING partner from the lease's liability (I'd say chances are against it, but at least try).
It's only fair to the selling partner that he (or you) not have to worry about any partnership liabilities creeping back in the next 18 months.
For both of the individuals above, I'd suggest that if your disgruntled partner takes you up on the offer, that you then hire a qualified attorney/solicitor to draw up the paperwork. I'll be happy to recommend someone in your area if you desire. And please, let me know how things turn out!
Labels: Easiest Way to Resolve a Partnership Dispute, partnership breakup, partnership dissolution, partnerships