Thank you for taking my questions because I would love to get feedback. Here's the situation:
Five years ago I began work on acquiring a small firm with the help of a foreign company. The foreign company owners and myself negotiated a phenomenal deal for the U.S. based company 2 years later. At that time, I brought a partner into the equation whereby he would infuse 100k of capital, manage the purchase of the company, and establish the new LLC. For that, I would allow him to become a 50 50 partner in a newly formed LLC. We purchased the stock of the original company and all employee contracts would be honored. The foreign company didn't want the liability issues of a U.S. based partnership so we all decided to provide them with 20% of the profits at the end of the year before k1 distributions. We only sell and support the products from the foreign company so our relationship is close. My new partner on the other hand has created some problems in several areas.
Here's my problems:
1. REDUCTION of MY SALARY: My partner does not work for the company and does not have an employment contract yet he immediately reduced my salary and commissions after my first paycheck, starting 3 years ago. I never agreed to this. I would have never given him 50% if he wasn't going to provide this 100k in capital during the start up years -- he has only loaned the company 25k and he never setup the Operating Agreement. I have the calculated amount of lost salary and plan to put this on the books as a loan to the company. Is this legal provided I have the original employment contract and purchase agreement of original company?
2. HIS SALARY: He's given himself a salary when he doesn't work at the company. I run all operations and the salary was never approved and agreed upon by me. Secondly, this salary should have been credited toward the 25k loan. If that was the case, he would owe the LLC money, not the other way around.
My foreign partners are incensed because this salary should have been used for marketing programs or added to the bottom line at the end of the year, particularly since he hasn't come through with the remaining promise. Without their partnership and the annual support contracts, we would be out of business and they could easily revoke the contract anytime.
Secondly, when I reviewed his checks, 100% of of the money were being withheld for the federal government -- he must have had a tax problem and used our company to pay it back because his checks were 100% withheld for about 9 - 10 months.
3. CO-MINGLED PASSWORDS for BOOKS: The QuickBooks company file have been located on my partners server with his other 30-40 companies. I have been able to remotely connect and enter transactions and write checks but the QuickBooks file, the bank, payroll, and online banking have one unique password which is tied to this other company whereby I haven't been able to access until now. I moved everything under our servers and worked with Intuit to create a new payroll under our LLC name.
4. CO-MINGLED EMAIL: Our EMAIL is through Microsoft via a monthly subscription. Nice deal but the administrative passcodes are tied to this other company and we haven't been able to garner access. We've been literally held at this partners behest for three years and his other company could have easily deleted all our past communications . These are assets of the company, not his other company. I have demanded this be returned and he has finally agreed but after a huge blowout argument. This was done for "control" purposes to benefit himself.
5. CO-MINGLED PASSWORDS for WEBSITE DOMAIN -- Again, we can't move our website simply because he's got the passwords tied to his other "Master Company". Again, these are assets of the company, not his other company.
There's more details I could provide but here's our fundamental question:
a. What's the fastest, easiest way to get out of this LLC and how long does it take in AZ to do this?
b. My foreign partners are satisfied with my work and our growth has been strong and steady. They trust me but definitely don't trust my partner. They are considering revoking the agreement. If so, can I open up a completely different company and continue on with the customers I have built? Please remember, these are annual support contracts. I know I have a fiduciary responsibility to the company but he's created an impossible position and has sabatoged our cash flow several times in the past. At this time, the employees, our foreign partner, and myself want out immediately; however, I am the other member of this LLC.
Please advise and thank you for listening -- I'm eager to hear anyone's suggestions.
1 Answer from Attorneys
Honestly, this is something you really need to hire an attorney for. The facts you have here are far to complicated for an accurate and comprehensive answer. How did he reduce your salary, you could just as easily brought your salary back up? Are there any written procedures for how control of the company is setup? Are you members or managers of the LLC? Are you a member managed or a manager managed LLC? If the LLC is setup as perpetual then as a 50/50 interest there would need to be agreement on dissolution of the LLC or you will need court involvement (most likely). It sounds like you are both members from your statements toward the end, but I did want to clarify that. As far as the agreement with our foreign partners an attorney would need to actually view those. With little in writing guiding how your 50/50 partnership was to be handled, this could become extremely complicated.
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