Removing partner from partnership:
About 20 months ago I started a printing business with a friend. Unfortunately we never got around to having the partnership agreement completed due to being busier than expected. I am assuming New York State law would then apply as far as the agreement would go? This is a small part time business generating only about $30,000 over that 20 months.
The basic oral agreement was that he would provide the designs and handle the art end, I would fund the business and manage the business end, and we would split the labor in the shop.
My partner has had little to no dedication to the business or learning the business. He has put next to nothing into the business from either an equity or labor standpoint, currently he has negative equity in the business. His total contribution to the business has been: A few dozen designs and variations of those designs, none of which has been any significant source of income for the business.; and making minor corrections to customer supplied artwork. He has taken a few thousand dollars in distributions from the business which was put on the books as payment for the designs he contributed.
• At night while I was at my other job, he has produced products for customers, under the company name, using company inventory and kept the payment for himself from the customer including the sales tax. These were small amounts, but nonetheless kept them.
• He has received requests form potential customers and did not bring them up to me to discuss if we should quote the potential business.
• He has used the company property, software, office and supplies for his personal freelance work/ business.
• He has produced multiple products for his personal use using company inventory, equipment and overhead without ever consulting me.
• What he has done often has to be done over and over again because it was done incorrectly because he has not taken the effort to learn how design graphics as they relate to printing.
• He has made no effort to learn the printing end of the business and how it applies to his responsibility as graphic artist. Without exaggeration he has done none of the labor, which is 90% of the time needed to produce the product, that we agreed to spit.
• I often had to research the art end "his end/responsibility" because he would be ill prepared otherwise.
• Spent very little time at the shop and half the time spent in the shop was spent on his personal work as is evident buy the 100's of Gigs of personal files on the company computer.
• As a last ditch effort and all but begging him for over a year and a half, the company (me) spent thousands of dollars on training this past March to get him more involved and to start actually doing some of the "work" . As of mid-June he had not applied any of the training and made no effort to do so.
• On more than one occasion I have had to call off work from my full time job to complete orders he could not complete because of his incompetence and lack of effort to learn the business.
• Near the end of June I told him that it was obvious that he had no interest in becoming an active partner and asked him to sign a dissolution agreement and leave the business. A few days later he responded that he wasn't going to just leave the business with nothing. Being cordial and curious I asked him to let me know what he thought a fair separation would be. I had no contact with him for the next month and he had come up with nothing as far as what a fair separation would be. He never came up with anything and now want me to do it and he or his attorney will revise it. Since my contact with him requesting him to leave the business he has completely abandoned the business. Including failing to forward important emails to me from customers.
• My contributions to the business have been 100% of the funding, 100% of the labor, 100% of research and shop setup to get the business started. On top of that I handle all the financials, inventory, quoting,, purchasing, production and process improvement, equipment, maintenance, research, etc.
• During most of the 20 months of the business he has been for the most part unemployed except for some freelance work. I have been working a 50-60 hour week job on top of doing all the work for the business.
• I have also provided the building rent free for the shop as well as paid the utilities to get the business started until a profit was realized.
• I would like to have him removed from the business and for me to retain 100% of all rights to the business, its name, the designs he produced for the business and was paid for, the web domain, etc.
1) Because of his negative equity, lack of dedication, and incompetence; should I have any trouble having him removed from the company without him having retain any right to anything related to the business?
2) Can I sue him for any monetary amount for the losses I have incurred due to his breach of fiduciary trust and breach of fiduciary duty?
2 Answers from Attorneys
1) Assuming your "partner" is in fact a partner in a legal sense then you cannot simply remove or take away his equity him because he has been a bad partner. You would need to either buy him out or dissolve the business and then divide the assets (if any) according to the default rules that apply to the type of entity it is (LLC or corporation or partnership). If you have creditors, there is also the option of declaring bankruptcy but that is typical quite costly and would depend the amount the business owes to third parties.
However, please keep in mind that it well could be that even though you consider this person to be your partner, they may not be your partner in a legal sense and that would free you up to continue with the business provided certain legal safe guards are put in place.
2) you can definitely sue your "partner" for taking (stealing) money and business away from the company. Suing him for being a bad partner would likely be much more difficult since you did not have a written agreement that specifies his role and duties. Also keep in mind that suing is very costly and will likely be more expensive then a recovery in this situation. With that said, I do see the possibility of strategically combining a law suit with one of the two approaches I noted in #1 to make sure your efforts to separate from him are successful at the least possible cost.
I would need to know more about the circumstances to propose a more detailed strategy. Contact me directly.
Roman R. Fichman, Esq.
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