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    4 Replies Latest reply on May 4, 2011 9:21 AM by LUCKIEST

    Removing MIA Partner from LLC

    the_hammer Wayfarer

      BACKGROUND:

       

      I formed an LLC (CA) to prepare income tax returns for this past tax season. I officially filed with the state (CA Secretary of State) and Fed (received our EIN#).

       

      My partner and I verbally agreed to a 50-50 partnership (both us being 'managing members') and that our contributions would be in the form of cash and/or tangible assets (computer equipment, furniture, etc.).

       

      I started to smell trouble with my partner's credibility or lack thereof through little lies, not providing backup for what he said he contributed to the business, not answering his phone when our equipment wasn't working, etc. He then bolted on me three days before the tax season ended leaving me with a mess and all the bills. He said he "didn't want to do this anymore" and walked out of the office. I haven't heard from him since which doesn't surprise me given 80% of our costs (for wages, computer equipment, marketing-ads, etc.) were funded by my cash; the majority of our capital contributions are broken out as follows:

      • Me - 80% (all cash)
      • Him - 20% (mostly tangible assets such as IT equipment-computers, etc.) using cost-basis approach.

       

      Keep in mind that we paid all of our bills through a formal business checking account that I set up for the business. It's just that the source funds that went into the account to pay the bills were mostly provided by me...our idea being just to keep us afloat until revenues started coming in. As it turned out, we didn't get much business revenue.

       

      I would like to keep the LLC and not dissove it given all the work and red tape that went into creating and filing it. It would become active again for next year's tax season and 1) I would run it on my own or 2) I would find another legit partner (i.e. 'managing member').

       

       

      MY QUESTION?:

      HOW CAN I GET MR. MIA (MISSING IN ACTION) FORMERLY/LEGALLY RELEASED FROM OUR LLC SO I CAN MOVE ON WITH IT ON MY OWN AND NOT HAVE TO WORRY ABOUT TECHNICALITIES AND/OR HIM COMING BACK TO CAUSE TROUBLE?

        • Removing MIA Partner from LLC
          LUCKIEST Guide

          I tried to answer this post before. The biggest problem is that you formed a "verbal partnership"

          A partnership should be in writing and also include an exit strategy.

          Talk to YOUR lawyer before your partner talks to his.

          • Re: Removing MIA Partner from LLC
            Barky Dog Tracker

            Hi Hammer,

             

            Just to add a bit to Luckiest's eloquent and thoughtful answer.

             

            You have to remember that a "verbal agreement" is essentially "no agreement".   Verbal agreements are very difficult to prove, and typically end up being your word against their word.  For that reason, most verbal agreements are not honored in a court of law.   Unless you have recorded proof of the agreement, a judge or arbiter may refuse to hear the claim, or worse- give your partner half of everything.

             

            Another problem is- if your hard work makes the current LLC very successful, your ex-partner could show up years later and demand "his half" of the business.  After all, he'll say he was a "Co-Founder".

             

            I hate to say it, but you may be better off in the long run if you scrap the current LLC and start over with a clean slate.   Of course, this is not legal advice in any way (nor am I qualified for that).  You should spend the $$$ for an hour or two of consultation with a business attorney.  Yes, it will feel very expensive, but it could save you big time in the long run.

             

            Oh, and I was going to say "No more verbal agreements!", but I'm sure you won't make that mistake again.

             

            Good luck,

             

            Barky