Partnerships split and rights to disbursements and property

[Jeffy25]

What is the name of your state (only U.S. law)?

Missouri.


Two years ago, my wife and I started a LLC with a partner, a 50/50 split of his ownership, and my wife's and my ownership. We put in more money to start this business (a brewery) - $125,000 vs his investments $50,000 and we signed on the dotted line of some SBA loans worth another $240,000.

The plan was that my partner would be in charge of operations and was listed as the sole 'Manager' on the Operating Agreement, since this is a full-time job for him, and something my wife and I would only be partially involved in as we have other jobs.

Business has just opened, and the original agreement (spoken only verbally) between my partner and I was that we would receive equal compensation for such a time until the difference of his hours, and our investment became equal. Then he would get an income independent of us for his employment of the company (originally we discussed $2500 a month).

Now that we are open, he wants to make us 'silent partners' and doesn't believe we have any rights to the business outside of silent ownership.

He intends to give himself a salary for his work, and doesn't want us to be paid anything.

Since he is listed as a 'Manager' on the Operating Agreement, and my wife and I are only Members (he is a Member as well) on a business of 50/50 ownership, does he have this right?

He won't even provide a key to the building to us.


My wife and I are considering just listing our ownership with a broker and selling it (he doesn't have the money to buy us out) since we have reached an impasse and can not work with him any longer.


What are our options? And what do we have a right to?

Any help is greatly appreciated.

 

[Jeffy25]

My wife and I are speaking to legal counsel tomorrow fwiw. But I wanted to get an initial reaction if one could exist from people who maybe know more on this than I do.

 

[quincy]

My wife and I are speaking to legal counsel tomorrow fwiw. But I wanted to get an initial reaction if one could exist from people who maybe know more on this than I do.

My initial reaction was to recommend you seek legal counsel in your area.

You have too much invested in the brewery to try and muddle through on your own or to try to attempt to solve anything with the type of advice you can get on an internet forum, which can only be based on a few facts and no personal reviews of contracts or agreements already in place.

I can tell you that everything should have been addressed in a solid written agreement right from the start. Oral agreements rarely work to anyone's benefit when a dispute arises.

Good luck.

 

[Jeffy25]

My initial reaction was to recommend you seek legal counsel in your area.

You have too much invested in the brewery to try and muddle through on your own or to try to attempt to solve anything with the type of advice you can get on an internet forum, which can only be based on a few facts and no personal reviews of contracts or agreements already in place.

I can tell you that everything should have been addressed in a solid written agreement right from the start. Oral agreements rarely work to anyone's benefit when a dispute arises.

Good luck.

Thanks

Unfortunately, I didn't think we would be having these issues....so I learned a major lesson here.


Gut reaction though, can a 'Manager' make decisions based on things like compensation to all parties, and determine things as simple as who gets a key to the building, while a 'member only' has none of these rights? Just gut reaction if you could.

 

[quincy]

Thanks

Unfortunately, I didn't think we would be having these issues....so I learned a major lesson here.


Gut reaction though, can a 'Manager' make decisions based on things like compensation to all parties, and determine things as simple as who gets a key to the building, while a 'member only' has none of these rights? Just gut reaction if you could.

What the manager can and can't do can depend on the terms of the Operating Agreement signed by the parties. If the Agreement didn't address issues like access to the premises (keys) or the compensation of parties, then keys and compensation are some things that will need to be hammered out between all parties in a new agreement or through an addendum to the existing agreement.

My gut reaction is that it is smart you are seeing an attorney in your area tomorrow.

Good luck.



Here is a link to Jeffy25's related thread on Operating Agreements: https://forum.freeadvice.com/starting-operating-business-3/buying-ownership-business-sole-proprietor-l-l-c-611086.html

 

[Jeffy25]

What the manager can and can't do can depend on the terms of the Operating Agreement signed by the parties. If the Agreement didn't address issues like access to the premises (keys) or the compensation of parties, then keys and compensation are some things that will need to be hammered out between all parties in a new agreement or through an addendum to the existing agreement.

My gut reaction is that it is smart you are seeing an attorney in your area tomorrow.

Good luck.



Here is a link to Jeffy25's related thread on Operating Agreements: https://forum.freeadvice.com/starting-operating-business-3/buying-ownership-business-sole-proprietor-l-l-c-611086.html

I greatly appreciate your help this evening, thank you.

 

[Jeffy25]

I have an attorney reviewing our OA.

Pretty sure he has to disclose bank accounts and keys with us.

One thought, since my capital contributions are over his. Can I force a change in ownership if he can't match those contributions in a timely fashion?

Nothing about capital contributions or ownership changes were ever written in the OA

 

[Zigner]

I have an attorney reviewing our OA.

Pretty sure he has to disclose bank accounts and keys with us.

One thought, since my capital contributions are over his. Can I force a change in ownership if he can't match those contributions in a timely fashion?

Nothing about capital contributions or ownership changes were ever written in the OA

You have stated that the other fellow owns 50% of the business. Since you don't have a controlling percentage of ownership, things will be tough.

 

[LdiJ]

I have an attorney reviewing our OA.

Pretty sure he has to disclose bank accounts and keys with us.

One thought, since my capital contributions are over his. Can I force a change in ownership if he can't match those contributions in a timely fashion?

Nothing about capital contributions or ownership changes were ever written in the OA

I would be tempted to insist on a two signature requirement for checks.

 

[Zigner]

I would be tempted to insist on a two signature requirement for checks.

How would you suggest the OP enforce such a requirement?

 

[LdiJ]

How would you suggest the OP enforce such a requirement?

Enforcing it wouldn't be the problem. Getting it put in place in the first place would be the problem. Business accounts that have a two signature requirement stop any one person from writing a check that the other knows nothing about.

 

[Zigner]

Enforcing it wouldn't be the problem. Getting it put in place in the first place would be the problem.

That's exactly what I meant. The OP would not be able to enforce the requirement that the account be set up to require two signatures.

Business accounts that have a two signature requirement stop any one person from writing a check that the other knows nothing about.

Yes.

 

[Jeffy25]

I haven't heard back from counsel yet, but this is what I want to know.


In the last six months, I put in my investment, which greatly exceeds his investment. Is it possible for me to enforce a change in ownership percentage since I put in the additional money and the business clearly needed it?

 

[quincy]

I haven't heard back from counsel yet, but this is what I want to know.


In the last six months, I put in my investment, which greatly exceeds his investment. Is it possible for me to enforce a change in ownership percentage since I put in the additional money and the business clearly needed it?

Jeffy25, while you wait to hear back from your attorney (who is your best source of information because he has access to your Operating Agreement and the facts of your corporation formation that will need to be personally reviewed and considered) here is a link to the Missouri Secretary of State website with information on Limited Liability Corporations that you might find helpful:

http://www.sos.mo.gov/business/outreach/startup_guide.asp

Good luck.