Legal Question in Business Law in Pennsylvania

I am 50% owner in an S-corp. I am the treasurer and Secretary but my partner is trying to run the business like she owns it completely. We no longer have a civilized relationship. The business is 1 year old and I have never gotten a penny from it for myself. My partner is bouncing checks left and right and Overdrawing the bank account every month. I believe the money is going to her personal account and she is paying bills of the business from there and telling everyone that the business is not making money and she is dipping into her own personal funds and I am not helping out. I can prove the business made money in the first 3 months of operation before she took over the finances.

My questions are:

1) Can I buy my partner out if she is unwilling to sell?

2) How do I determine the value of the business?

3) Does it matter how much assets each partner puts into the business if it is not written in the contract?

Both are 50% partners. Will the assets split 50% regardless of who puts what?

4) Should there be compensation for the partner who chose the name of the business if they decide to leave the partnership and the business remains under the same name?

5) Do I have a case for embezzlement?


Asked on 10/29/09, 2:27 pm

1 Answer from Attorneys
Sharmil McKee McKee Law Office

What you are talking about is a business divorce. Business divorces are similar to marital divorces. The partners will add all the assets and account receivables, then subtract the debts and retained equity. This final amount--'profit'--is split based on each partner's share of the business. Business are governed by either their governing documents (partnership agreement or an operating agreement) or by state statute. If your business does not have any governing documents, then the state statute tells you how to divide your business. I will assume that you do not have any governing documents. So, based on the state statute (the Pennsylvania Corporation Act), you can buy out your partner. There are 3 standard formulas for determining the value of your business--this process is called business valuation. It is completed by an accountant, or sometimes a forensic accountant or a certified public account. It's a complicated process, because it involves a projection about the business' future profit.

Yes, you can sue her for embezzlement. This is called a breach of fiduciary duty. If she ran the business into the ground, then you can also sue her for the loss by filing for derivative action against her on the business' behalf.

In short, you have a couple of options. I recommend hiring an attorney so that you and your partners can separate any emotional attachment from this business transaction. Your attorney can stand as a wall between you and your partner now that the relationship has broken down.

Call me if you want to discuss your options in detail. Good luck.

Sharmil McKee

Business Attorney

[email protected]

McKee Law Office

Philadelphia, Pennsylvania

215-242-5260

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Answered on 11/09/09, 6:11 pm


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