Legal Question in Business Law in California

Re: Partnership Agreement

The problem you have presented is not so much a legal problem as it is a human relations problem. Maybe a private mediator would help. There are some professional mediation services that use retired judges and charge hundreds of $ per hour. Perhaps there is someone in your area who charges less. As to the proposed form of your business, I know little about your situation from the facts stated in your question. You might (or might not) be well advised to avoid a sole proprietorship and you might (or might not) be especially well advised to avoid a partnership. Both of you ought to meet with a business lawyer once you reach an agreement as to your respective roles and expectations.

Re: Partnership Agreement

You both should consult with a business lawyer...and atleast get a Memorandum of Understanding drawn up by the attorney. if you already have a dispute as to the percentage of ownership and your roles in the company..again an attorney can mediate that issue.

Please take a look at my site at www.lawyers.com/amyghosh

Re: Partnership Agreement

It seems to me that your best course would be to sit down with your associate and discuss your feelings, it maybe that you should bring in a mediator to help the two of you get into an mutually acceptable position. Sometimes that is a lawyer, rabbi or minister, or any one you both respect. If you can find common ground you can both move on and develop your business.

Re: Partnership Agreement

I can't give you a really useful answer without additional facts, including what places the business "legally in my name only." Does this mean you are the only signer on the checking account, or that you took out the business license, or you are the one known to the product supplier, or something else? Also, what value, if any, might be assigned to your friend's contribution of the product line? Contributing ideas and leads can be given recognition in evaluating contribution to a partnership's capital.

A partnership exists whenever two or more persons associate to conduct an activity for profit with the intention that the profits and losses be shared in some percentage, whether or not there is a partnership agreement and in some cases even if there is an agreement saying that the participants' arrangement isn't a partnership.

In the absence of a partnership agreement (written or oral), but where the facts show a partnership to exist, the partners' rights will be governed by the Uniform Partnership Act. The Act assumes equal ownership, but where the facts show a different intent or differing capital contributions, then the result can be otherwise.

I would guess that if your situation went to trial right now, the judge might say it's a 50-50 partnership but that your friend owes the partnership some additional money because she was behind on contributing to capital. Whether the 90-10 vs. 50-50 division of work affects the outcome is more problematic than you might think because, under the Act and absent an agreement, partners aren't entitled to be compensated for services rendered to the partnership. The unequal contribution of services is meaningful only to the extent it differs from what the two of you agreed upon at the outset.

Finally, under the limited facts given (i.e. that the business is legally in your name alone), it seems to me that you are running some risk that the friend could be considered your employee for tax or workers' comp insurance purposes.

I think the conclusion is that you must have a full and frank discussion with your friend about the present and future of this business. You may be able to arrive at an agreement, in which case get it in writing ASAP. If not, see if your friend will agree to submit the differences to mediation, or even binding arbitration. If negotiation doesn't work and she won't mediate or arbitrate, then it's time to retain a business attorney to assist you in seeking a resolution. In my experience, it's better to attack problems with partners head-on than to allow them to fester, unaddressed, month after month.

Re: Partnership Agreement

In partnerships, some partners do the work others do other things, ie., provide product line. However, whatever you agree to, the IRS and FTB will look for payment of taxes by partners, so, if money comes in, someone will have to pay taxes. Don't get yourself into this kind of trouble. Old saying, creditors must sue you for money you owe, the IRS can take it as they please.

Re: Partnership Agreement

Right now you have a mess waiting to hit the fan. You are resentful because you are doing all of the leg work to get the income now. Your "partner" thinks she entitled to half because of previous contributions as well as current work she does.

Best bet is for you to sit down with an attorney and discuss your options. Because you are not actively in a dispute, it's a good time to formalize your relationship with your "partner".

There are several issues that need to be ironed out with your partner including issues of taxes, employment versus independent contacting.

Is the "partner" really necessary for you to operate the business? What, exactly, is the "product line" that your partner brought to the venture? Have you been operating as a corporation or LLC?

I would be happy to consult with you regarding these issues. Mediation may, at some point be a good thing. However, you want to know what your rights and obligations are before doing that.

J. Caleb Donner

DONNER & DONNER

LEGAL WARRRIORS (R)

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Thousand Oaks, CA 91360

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