united-states, llc, equity, partnershipIn a situation where a two person 50/50 partnership has run its course, how does one person (me) get out when the other person is content letting minimal sales trickle in (average of about $1000+ a month), just handling customer support requests, while ceasing development of the software (total lack of interest).
The partner that wants to maintain the status quo has suggested that I can simply walk away from it if I want to. But there is some value in the business assets, the current sales, years of effort put in, and potential, if he later chooses to sell the business to a more enthusiastic and motivated individual. He does not want to sell or buy out my 50% ownership.
FYI, we don’t have a formal business/partnership agreement. This started up as a casual thing, and we did create an LLC before we launched the product.
Tricky pickle you are in. First off next time never do 50/50 since that extra 1% can mean a lot. But for this case it depends on how the company was structured so look into the details of your LLC agreement.
If there is no pre-set vested period then technically you own 50% of the company and you can walk away with 50% of the company and its assets as it is now. Or if you never signed a non-compete document with the company then you can just start a new business doing the same thing.
I would follow up with a lawyer to look over your organization agreement.
Go find a lawyer and ask. There’s no generic useful answer I’m afraid (and never never do this again without a formal agreement ;-)
Before there’s lawyer there’s an idea of how your business should be structured. Lawyers just find ways to enforce it or breach it.
I don’t want to be negative and I might be wrong, but your partner is perfectly within the original idea while you want to change it.
Namely, I don’t think your partner would ever agree to terms when he can be forced by you to buy or sell anything.
If you’d like to get out, you have to find a buyer for your share. If nobody wants it then the price of your share is zero since there’s no demand. Why would your partner pay for something that has 0 price?
That’s actually not always possible to sell your share to a stranger. Your partner probably doesn’t want some random guy to participate in the business. That might be something that you both never thought about though. So you’ll have to find common ground for that, but before it happens you need to find at least one prospective buyer for your share.
If you walk out, you just lose it all, so don’t do it.
Instead, you can simply stop worrying about this business and let your partner run it. You’re still entitled to 50% of it in case it sells, but your partner will most likely make sure that LLC is worth nothing and generates no profits for you.
Main principle is that if you bring nothing, you get nothing, so don’t expect your partner to be OK with you making 50% on his efforts. It’s still better than giving him your shares for free though. Might be worth something.
To summarize, I think your best bet is to find a buyer for your share and make sure your partner is OK with the transition.
Many jurisdictions have a law that provides default rules to apply when there is no written agreement covering partnership dissolution.
Here in both UK & Ireland, it is a law referred to as “Partnership Act, 1890”
I did a bit of googling, and I think each state in the US may have a similar law, it seems to differ state by state. For example, in New York, for LLCs, it is the New York Limited Liability Company Law and for corporations, it is the New York Business Corporation Law. I found that by googling “dissolving llc partnership unwilling”, maybe you can find more for your specific state.
If the partnership also happens to involve jointly owned property then there is a legal remedy called “Partition” to deal with joint real estate assets: http://en.wikipedia.org/wiki/Partition_(law)
Unfortunately, in my experience relying on these laws is always a poor choice next to a proper partnership agreement with getout clauses. Next time get a prenup
Consider offering your partner a small percentage in a new corporation in return for his agreement that your existing company will form an irrevocable, un-modifiable license to use and extend your existing company’s assets (not including its name or brand) to that new company. That way your existing company can continue to earn its meager profits (of which you would continue to get your 50% share), and you would be free to pursue the growth of its products/services without the burden of an apathetic, equal partner.
Get a lawyer to write up that license agreement and make sure that it cannot be cancelled or renegotiated later, when your efforts have increased the assets’ value. Also include a termination clause such that the dissolution of your existing company will not terminate your new company’s license to the assets.
I am not a lawyer and this is not legal advice.
Usually that is all established in the paperwork when forming the partnership. When all of the papers are signed the partners create their agreement and legally sign off on it. Just my two cents
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