What obligation do I have to my "co-founder"

[Scojak]

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

Hello, I'm pretty new to business law. Suffice it to say it's safe to assume I know nothing. I have started a consulting company. At the onset, I had the intention of partnering with someone. She gave me $120 to secure a business address (half of a $240 expense) which I did. I kept working toward the goal of an operational business, while she showed less enthusiasm in the process. I took the reigns and have incorporated the business and opened a business account with a $3k initial deposit (my money), both in my name.

At this point I don't really want to be partners with her due to her minimal effort. I'm wondering what obligation I have to her if any. The only place her name appears is on the list of approved names for delivery at the business address. The entirety of her contribution has been some of the initial planning and the aforementioned $120. We do not have a drafted partnership agreement or any documentation discussing ownership.

I'm now at the point where I want to pursue clients, but not before getting this straightened out. I'd like to know what my options are and if I have any obligation to her. What would dictate her ownership of the company? Does the $120 mean anything? If I give her $120 am I in the clear? Does any of that even matter?

Any info and advice is much appreciated. Thank you for you time.

 

[Scojak]

Bumping this back up. Anyone have a thought on this issue?

 

[quincy]

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

Hello, I'm pretty new to business law. Suffice it to say it's safe to assume I know nothing. I have started a consulting company. At the onset, I had the intention of partnering with someone. She gave me $120 to secure a business address (half of a $240 expense) which I did. I kept working toward the goal of an operational business, while she showed less enthusiasm in the process. I took the reigns and have incorporated the business and opened a business account with a $3k initial deposit (my money), both in my name.

At this point I don't really want to be partners with her due to her minimal effort. I'm wondering what obligation I have to her if any. The only place her name appears is on the list of approved names for delivery at the business address. The entirety of her contribution has been some of the initial planning and the aforementioned $120. We do not have a drafted partnership agreement or any documentation discussing ownership.

I'm now at the point where I want to pursue clients, but not before getting this straightened out. I'd like to know what my options are and if I have any obligation to her. What would dictate her ownership of the company? Does the $120 mean anything? If I give her $120 am I in the clear? Does any of that even matter?

Any info and advice is much appreciated. Thank you for you time.

I recommend you discuss this with your "partner."

It is possible, especially from what you have written in your post, that she no longer has any interest in the business. If her only investment is $120, she might be happy to be refunded this amount and that will be that.

If a refund of $120 is all that it takes, you might want to get this dissolution of your oral agreement in writing and signed by her and by you, so she cannot come back later to demand additional compensation or claim some rights in your business.

In the future, it can be important to have all agreements in writing and signed by all parties. The agreement should work to address issues like the one you have before you now. A written and signed agreement can eliminate a lot of problems that tend to arise in all businesses.

Good luck, Scojak.

 

[Scojak]

Thanks, quincy, for the advice. I do intend to speak with her to clarify the situation, but I'd like to be prepared in case she does not want to part ways amicably. I'd really like to know what legal recourse she would have if she does in fact want ownership of the company. Any thoughts?

 

[PaulMass]

It seems you wish that your partner is dissociated from the partnership.
Your Partnership is governed by the UNIFORM PARTNERSHIP ACT OF 1994.
You can research this online at http://www.leginfo.ca.gov/.html/corp_table_of_contents.html (see Chapter 5)

You may need to "wind up the business" first.

 

[quincy]

Thanks, quincy, for the advice. I do intend to speak with her to clarify the situation, but I'd like to be prepared in case she does not want to part ways amicably. I'd really like to know what legal recourse she would have if she does in fact want ownership of the company. Any thoughts?

You're welcome, Scojak. Thanks for the thanks.

I think it can be smart to be prepared in advance if your partner does not want to end her business relationship with you in an amicable fashion, one-on-one, but an amicable solution worked out between the two of you is, of course, the best way to end your partnership.

If there is a problem with the $120 offer, you might want to offer to buy out her share of the business, which could/would be greater than the $120 if your business has acquired significant assets. Then, if this does not work to satisfy your partner, finding a mediator could be smart. Heading to court for a resolution should be your last resort because a court is likely to divide all assets and debts 50/50 - and you could find yourself without much of a business left.

Did you ever file a statement of partnership with the Secretary of State's office, Scojak?

Here is a link to California's laws on partnerships that you can peruse (it is not exactly fun reading ):
http://ca.regstoday.com/law/corp/ca.regstoday.com/laws/corp/calaw-corp_TITLE2_CHAPTER5p5.aspx

 

[LdiJ]

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

Hello, I'm pretty new to business law. Suffice it to say it's safe to assume I know nothing. I have started a consulting company. At the onset, I had the intention of partnering with someone. She gave me $120 to secure a business address (half of a $240 expense) which I did. I kept working toward the goal of an operational business, while she showed less enthusiasm in the process. I took the reigns and have incorporated the business and opened a business account with a $3k initial deposit (my money), both in my name.

At this point I don't really want to be partners with her due to her minimal effort. I'm wondering what obligation I have to her if any. The only place her name appears is on the list of approved names for delivery at the business address. The entirety of her contribution has been some of the initial planning and the aforementioned $120. We do not have a drafted partnership agreement or any documentation discussing ownership.

I'm now at the point where I want to pursue clients, but not before getting this straightened out. I'd like to know what my options are and if I have any obligation to her. What would dictate her ownership of the company? Does the $120 mean anything? If I give her $120 am I in the clear? Does any of that even matter?

Any info and advice is much appreciated. Thank you for you time.

I would suggest that you try giving her choice between accepting her 120 back and releasing your company to any obligation to her, or signing an agreement to invest an equal 3k in the company with a signed agreement that she commit equal labor in the company.

Otherwise, she has a pretty minimal claim towards the company that you incorporated...unless she contributed a lot more intellectual stuff than you are indicating.

 

[Scojak]

I would suggest that you try giving her choice between accepting her 120 back and releasing your company to any obligation to her, or signing an agreement to invest an equal 3k in the company with a signed agreement that she commit equal labor in the company.

Otherwise, she has a pretty minimal claim towards the company that you incorporated...unless she contributed a lot more intellectual stuff than you are indicating.

Thank you for the suggestion. I will have something prepared in case it comes to that.

Her intellectual contribution was honestly minimal. We were both working as advisors for a company and independently realized we could do well consulting. One of us mentioned the idea to the other and the other said they were thinking the same thing. We brainstormed a bit but I came up with the majority of the operational process which I have in emails to her. In fact, almost all email correspondence is me sending ideas and her sending a back a question for me to explain or at best a bit of feedback.

 

[Scojak]

Thank you quincy and PaulMass for the direction. Looks like I have some reading to do.

 

[quincy]

Thank you quincy and PaulMass for the direction. Looks like I have some reading to do.

You're welcome, Scojak.

And thank you for the thanks - both PaulMass and I appreciate them.