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Question: “My lawyer does not want us to sue because the cost involved is too much for us to bear. I feel there is no justice for me and my remaining partner.”
Answer: Depending on the facts of the case, you may very well have good reason to sue, and you may even win a judgment against your former partner.
That said, your lawyer is probably giving you prudent advice. Paying a lawyer to sue your former partner could easily end up costing you $20k or more. Unfortunately, your case isn’t something that a lawyer would take on a contingency fee basis, and the fees aren’t something you can pay after winning the case and after you collect … it’s an expense you’ll need to pay out of pocket as the case moves forward.
Moreover, even if you win you may never collect a penny. The former partner may simply file for bankruptcy protection and have your judgment wiped out. That is a popular option for people when they have judgments against them for tens of thousands of dollars.
Then, there is the real possibility that you’d lost your case. Obviously, I can’t really comment on your chances since I don’t have nearly enough information, but generally speaking, if the buiness is an LLC, limited partnership, or corporation, then your former partner would not be personally liable unless the debts you’re referring to are personal debts … i.e. he used a company credit card for personal use.
Of course, sometimes making a point is more important than the cost and risk involved in litigation. Many people, and even businesses, file lawsuits that from a cost perspective don’t make sense, but from a moral perspective make perfect sense. If you strongly feel that you want to make such a point, then perhaps you should sue.
Have I satisfactorily addressed your concerns? If not, then please feel free to ask for clarification.
DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the state of Maryland. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.
Question: “Are you saying that legally, my disgruntled partner can leave anytime without having to be 1/3rd responsible for the debts incurred while he was a partner? He has/had 33 perecent of the shares. We didnt make any money last year because of overhead costs.. We are a S corp. Why should he run and leave us with all the debts? Doesnt make sense to me...does it to you?”
Answer: Actually, depending on the specifics of the situation, it could make perfect sense. I’ll explain:
The purpose of creating a corporation rather than just a simple partnership is to shield the owners from the liabilities of the business. Therefore, if the business can’t pay its bills, the creditors will not be able to go after the owners and their personal assets (of course, that could change if the owners personally obligated themselves to the debts). Other than the liability shield, there is no reason to form a corporation. After all, it is much easier to just have a simple partnership … all the rules, regulations and filings associated with corporations are a hassle, right?
So, if the business is in debt, your former partner may very well be able to walk away without personally being liable (again, it depends on the specifics of your particular situation). The same may go for you and your other partner as well.
You say that your former partner has/had 33% of the shares. Okay, let’s say that you owned 1000 shares of IBM stock. Does that mean you are personally liable for some of IBM’s debts? I’m sure you realize that’s not the case.
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