Legal Question in Business Law in California

Re: former DBA partner's interest in current LLC

Without looking at the agreements and all other corporate documents it will be hard to advise you.

Re: former DBA partner's interest in current LLC

The answer's a definite "maybe". What could happen is that your former "partner" can sue claiming that you used the assets belonging to the partnership to go into the new LLC and that he would be entitled to either a share of the profits or at least a share of the value that went into the new LLC.

Of course, he could also argue that he should be entitled to a percentage of ownership based on your past agreement claiming that the new LLC is the LLC that was always intended from the agreement between the two of you and that you have breached your agreement by freezing him out.

If the business is likely to be successful you should explore your options now.

You should make a consultation with an attorney to discuss your options, review the documentation and help you make decisions.

Caleb

P.S. Let me know if you'd like to make an appointment.

Re: former DBA partner's interest in current LLC

I assume that your ex-spouse was "ex" at the time the "DBA" was formed. If not, community property rules might apply and change the outcome.

First, a "DBA" is not a business entity, it's only a name. Second, if a business is formed and carried on by two people, it's very likely a partnership rather than a sole proprietorship. This would be true even if it filed a DBA registration with the county stating that it was a sole proprietorship. Calling a sheep a goat doesn't make it a goat. The arrnagement you describe (20% profit sharing after certain goals were met) probably makes it a partnership, whether or not this was intended.

Then, when you dissolved the business, you were probably dissolving a partnership, and California has pretty specific laws about dissolution of partnerships and distribution of its assets. See Corporations Code sections 16801 to 16807. The name may be an asset whose value should have been taken into consideration in distributing the partnership assets and paying its liabilities. However, its value for break-up purposes would be its value at that time - when the partnership dissolved - and not its possible future value. If the dissolved partnership hadn't done much business, didn't have a lot of goodwill, and hadn't established the name as a trademark, I'd say the value of the name is likely insignificant.

For these reasons, and some others which time and space don't allow me to elaborate, I'd conclude that the ex-spouse has no claim on the newly-formed LLC based upon its use of the name. If it has a claim, it is at most a claim for a portion of the value of the name at the time of the dissolution; in other words, a money claim, not an ownership claim.

Whether the ex-spouse has a claim based on the letter of intent is a separate matter. Perhaps the LOI was never enforceable as a binding contract in the first place - many aren't - but a lawyer would have to read it carefully (and perhaps inquire into the surrounding circumstances) to form an opinion as to how a court might rule. Then, even if it were enforceable at one time, it's possible the dissolution of the partnership (especially if accompanied or followed by a winding up of the business it conducted) effectively terminated the LOI.

All in all, I think the manner in which the dissolution was carried out, how other assets were divvied up, and the extent to which the dissolution was formally documented may be controlling on the ex's rights.

If the dollar amounts involved here are non-trivial, it would be worth the fees to have a business lawyer review the documents and advise you.

Re: former DBA partner's interest in current LLC

There are facts left out of your description which make it impossible to give you a difinitive answer, although from the facts you describe, it is more likely than not that your ex-spouse would not have a claim subject to the answer to the following questions:

1. What was the role of your ex-spouse in the original DBA? Was there any written agreement between you and your ex? Did your ex also share 20% of the liabilities of the DBA? [This is an essential element of a partnership, sharing profits and losses.] On the dba registration, who is listed as the owner of the sole proprietorship? What was the business of the DBA with your ex-spouse?

2. How was the dissolution of the DBA with your ex-spouse done? Was there any writing documenting the dissolution? Was there a publication of cessation of the business? Or did you just stop working together and move on without any further documentation? Was the dba mentioned in any of the divorce orders or settlement agreement?

3. What does the LOI say? That document has to be examined.

4. What was the business of the original DBA with your ex, and how does that compare to the business of your new LLC. [Similar names do not necessarily mean similar business]

5. Where did your "partnership" do business? Where does the new LLC do business?

Once you have the answers to these questions, contact me or any other competent lawyer to go over the details, and perhaps to document your new business so as to (a) meet or address any legitimate claim your ex could make, or (b) protect you from any frivolous claim.