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A friend and I recently decided to start a small home-based business in California. Because she collects disability benefits she didn't want to be a "legal partner". The business was set up as a sole proprietorship in my name. There is no written agreement between the two of us regarding the terms of our business relationship. Since my friend had no financial assets, I put up 100% of the "start-up" cost, approx $3000. We've each contibuted the same amount of effort/labor with regard to making the product and have approx 4000 items ready to sell and have our product in a few differant venues. So far we haven't sold a thing; however, that's not my main concern. It's become clear that my friend and I have very different goals, objectives and expectations. I guess you'd say we had no "meeting of the minds" regarding the scope and vision of this enterprise. A big mistake on our parts. We're not getting along too well at all at the moment and this friction is causing us both a lot of stress. I have decided that we need to end our business relationship and go our separate ways before things get any worse and our friendship goes out the window. I would like to continue doing business on my own and in my own way, and I have NO objection to my friend doing the same thing. My question is, under the present circumstances, are there any legal obligations regarding investment monies, assets, product, or compensation? I'm mindful that my friend has worked diligently for the last couple of months but, by the same token, I've invested an equal amount of time and effort, plus $3K of my own savings, which I may never recover. I'm not sure if my responsibility is a legal or a moral one, but I want to be fair and try to get through this transition on good terms. Any advice you can give me would be greatly appreciated. Thanks.


Senior Member
Though I believe you are under no legal obligation to compensate her (based on your post), I commend your desire to resolve this morally.

So, my suggestion:
You say that you have an inventory of 4,000 'widgets' for sale. Deduct a reasonable amount for 'spoilage', losses, no sales, etc. (say 3,000 widgets remain).

Determine the 'total retail value' of those remaining 'widgets'. Subtract the total 'cost value' (total out-of-pocket expenses that each of you incurred. Be sure to include the $3,000, cost of utilities, gas, etc.)

Then subtract the 'total cost value' from the 'total retail value'. The remainder will be the 'potential profit' that your 'widgets' would generate. Split the potential profit and each of you go your separate ways.

An alternative if both of you want to sell the 'widgets' (great competition in the same town!). Pay off the split in 'widget inventory'.

Steve Halket
Judgment Recovery of Houston
[email protected]
This is my PERSONAL OPINION and is not legal advice! Consult your local attorney for your specific situation and laws!

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