Legal Question in Business Law in California

Partnership

My partner and I purchase a franchise last july. After both signing the franchise agreement, the majority of the business purchase was paid for by my credit card. The franchior finance the remainer of purchase which we both sign a promissary note for. We both also have invested cash contributions in equal amounts and miscellious start up cost was invested as well. My partner has suffer sever personal finanical devastation and is has drawn out all of her cash contribution and also is requesting the business reimburst her for remainder of start up cost as well. I myself have not drawn anything out business. Being a new business it is starting suffer. My partner is also is requesting that I should take out an additonal line of credit to keep the business a float. I--name removed--not feel comfortable with this at all!I suggested to her that she needs to get job to supplement her income because the business cannot support her at this time. I have also suggest that we sell the business so that I can be relieve of all debts that are currently in my name. She has refuse to sell her half. This business is a corportion and I need to know what my options are?


Asked on 4/09/04, 11:49 am

2 Answers from Attorneys
Amy Ghosh Law Offices of Amy Ghosh

Re: Partnership

You may have to intiate a legal action against her. Do you have a partnership agreement. Please take a look at my website at www.lawyers.com/amyghosh

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Answered on 4/09/04, 12:03 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Partnership

In the very first place, you have to get clear whether this is a partnership or a corporation. The law is quite different. Throughout your facts you refer to 'partnership' and 'partner' but in the final sentence we learn that the business is a corporation!

A corporation has Articles of Incorporation and bylaws that govern, along with a bunch of statutes found in the Corporations Code, what its stockholders, directors and officers can and cannot do with the corporation's assets and property. Once money or other assets are put into a corporation to capitalize it or for other purposes, the money or assets belong to the corporation and the stockholders, directors and officers may not use the corporation as a kind of personal piggybank.

Have you had an organizational meeting for the corporation? Did you form the corporation yourselves, or did you use a lawyer? Did the lawyer give you any coaching in organizing your corporation after its formation? Have you named directors? Adopted bylaws? Appointed officers? Opened a bank account in the corporation's name? Started to keep corporate books and records?

This business is headed for disaster if these formalities are not attended to promptly, especially if one of the two co-founders (you may be partners as well, but corporations don't have partners, they have stockholders) is in financial trouble.

Your franchisor should, I think, have given you more assistance in organizing your business.

At any rate, you need professional assistance in organizing, funding and running your corporation. You should probably take ALL your documentation to a business lawyer ASAP, including the franchise agreement, the articles of incorporation, the bylaws, the books and records, copies of any corporate resolutions, anythin in writing showing the capital contributions made to date and those promised but not made, the stock register, and most important, anything in writing that expresses the agreement(s) between you and the other co-founder, including letters, e-mail, etc.

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Answered on 4/09/04, 2:06 pm


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