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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 91037
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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Okay, I have yet more information on my matter and therefore

Resolved Question:

Okay, I have yet more information on my matter and therefore I need another opinion (I am quite happy with your services so far, BTW):

One -- Ohio, where the LLC was formed, does not require annual reports (at least according to the Ohio SOS website) so no annual reports were apparently created;

Two -- When my other two (supposed) partners in the LLC setup the company they apparently only filed the initial Articles of Organization and nothing else official. This includes not producing an Operating Agreement, which among other things (at least for Ohio) would have explicitly listed shares in the LLC. The signatures of my other two partners are on the AoO, but my understanding from other sources is that has little to no bearing on the actual ownership of the company (especially since there is no way on that document to list third party ownership/investment -- heck, there isn't even space for a third person to sign as an agent!).

As I understand it without an explicit listing of ownership any determination of such would fall back to whoever was filling the "role" of an owner and what each person brought to the new company. In that regard I was treated exactly as my other two partners -- I was part of all major business decisions, I interacted -- often by myself -- with all of our various clients, received the same pay, got bonuses when there was extra money, missed paychecks when there was not enough, and so forth.

Likewise, our clients were brought into the company through the roughly equal work of all of us. That is, we had been working together for another company where we first collectively gained the clients. When that company went bankrupt and had signed no non-compete contracts with us or our clients we effectively inherited the latter. One of us was primarily a salesman who took care of the day-to-day "managerial" tasks (without actually managing us -- that was a collective decision), the other (the one who in the end took most of the business) was both a salesman and a technical expert, and I was the primary technical "heavy hitter" who among other things typically handled the most difficult assignments. It was an arrangement that worked well for years until this lousy economy put stress on our botXXXXX XXXXXne. The partner who ultimately declared me "just an employee" and that he deserved two-thirds of our clients because he'd "get them in the end anyway" was by far the most vocal and bitter about our financial reverses. In this economy I was just glad to have a job that paid enough to get by.

(I know the above paragraph is a bit off-topic, but I wanted to make it clear that our partnership truly was an organization of equals -- the "three amigos" as I liked to put it -- where each member had brought the same general level of value and was just as important to success).

The only exception to any of this is that at some time previous to the moment when the one partner decided to walk off with 2/3s of the business (while making it clear to the third partner that he would ultimately steal back any the clients he wanted anyway so he might as well be given all that he demanded) the business started to pay unemployment on my behalf. It was done without my consent or knowledge -- and certainly without any warning of what larger implications it might produce. I was also given a W-2 at the end of each year, but again without any explanation of what that might mean regarding my ownership. It was also strongly implied at the time that all of us were receiving the same tax paperwork. We were certainly all being paid the same salary and benefits.

I believe that the two other partners (despite it being their job to take care of financial matters) did not themselves entirely realize what the law said on this matter. Certainly, both spoke of and treated me as an owner for most of the history of the business. This remained true of one partner up until the end while the other (the one who subsequently walked away with most of the company) some months before the end did out-of-the-blue start insisting that I was "merely" an employee (something that the other two of us disagreed with) based upon the single fact that his name was on the initial AoO and mine was not (mind you, I specifically asked him at the time if I needed to sign the paper for all to be proper -- he insisted that wasn't the case and, at the time, likely believed it).

Yes, I will be the first one to admit that I was overly trusting and should have investigated the matter more thoroughly, but it is clear that my partners were themselves operating from some degree of ignorance (apparently, they just followed the dictates of the lawyer they talked with for one afternoon when drawing up the initial AoO and assumed that was all there was to it). After all, no Operating Agreement was ever created, ownership was never explicitly laid out, and apparently no annual reports were produced. Likewise, it was only after the fact that unemployment was paid in my name (although I have not as yet taken advantage of it despite not actually having a job right now as a result of the breakup of this partnership).

So, where does this leave me in regards XXXXX XXXXX supposed 1/3 stake in the LLC? I ask not just because of possible beneficial reasons (our business was small with revenue of around a quarter million a year), but because I have since learned that the business has outstanding tax debts. Compared to revenue the amount is small, but for a guy who is now unemployed without receiving any financial settlement from either partner (the partner who took two-thirds of the business -- basically my third and his third -- did offer verbal promises of continued part-time employment and extended health benefits, but they turned out to be nothing but ploys to avoid a confrontation and buy time) even a modest debt in the few thousands of $$$ could be devastating. Thus, I need to know what my ownership of the business may now be considering these new developments -- both to see if I can salvage anything from four years of hard work and to know if I am looking at suddenly having to write a big check to the government!

Also, if I am owed a third of the company how would I determine its worth? I am obviously not asking for anything specific, but considering how my trust in my friends/partners proved to be foolish this time I would like to have at least a ballpark figure of what to look for when negotiating a possible settlement.

Thanks again!
Submitted: 3 years ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 3 years ago.
First, with the information you have provided there is good evidence that you are indeed a 1/3 owner and absent any other contracts it appears you could sustain a case against them. The issue of determining the value of your share is more complex because this would require an audit of the corporate books to determine the assets and liabilities and if they will not agree to an adequate value then you would have to negotiate that based on the values of the contracts you have out there. At this point with all of these issues going on you really need to now bring an attorney on board because this is where you are getting to the point where if they will not agree to give you your share of the company that you are going to have to file suit in order to force their hand and to get to audit the books as well.


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Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 91037
Experience: All corporate law, including non-profits and charitable fraternal organizations.
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