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MShore Law
MShore Law, Attorney
Category: Business Law
Satisfied Customers: 25285
Experience:  Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements
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I am a co-founder of a 4-year old 501 c3 non-profit organization.

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I am a co-founder of a 4-year old 501 c3 non-profit organization. I am also the one who provided over 80% of the capital to start the organization which was every dime I had (approximately $250,000). My business partner has issued me an ultimatum of which I am not willing to accept. I understand that there is no "ownership" in a non-profit so there is nothing to "sell" which would be unethical in my view anyway. However, what I DO OWN 50% of is the trademark and logo which is licensed to the non-profit. I am not seeking to disparage the non-profit or its mission but I no longer wish to work with my partner going forward. I simply want to recoup the capital that I invested during start up phase and whatever assets I'm legally entitled to (if any) from the licensing of the well-established, brand value of the trademark and logo. This is a complicated situation for sure but I fear that I will lose my entire life's savings should I decide to leave the organization and get on with the next chapter in my professional career. Can you advise me as to what is the first step I should take to work through this with the hope of coming to a reasonable resolution for both sides and at least retain the minor semblance of financial security I had prior to this business venture?

Thank you in advance.
Thank you for the post, I am happy to assist you by answering your questions. what are the terms of the ultimatum presented by your partner?
Customer: replied 3 years ago.

He doesn't like my style of managing and that if I don't acquiesce to his style of management, we need to part ways. I have been managing people throughout my entire 30 yr professional career. This is his first-ever experience of being the "head" of any business. He is in his mid-30's and I have tried to share my vast amount of business experience with him but he simply rejects it most of the time. This is NOT an ego play for me for I have never given much focus and attention to titles from a narcissistic viewpoint. There is simply a distinct difference in business philosophy and level of business aptitude between us and after 4-years of trying to bridge that gap, I am finally throwing in the towel so to speak.

Thank you for the additional information Paul, is your partner suggesting that you buy him out? If yes, on what terms or if not a buyout, what ultimatum is he proposing?
Customer: replied 3 years ago.

Actually it's the other way around. He has stated that he will try to find someone that would be interested in "buying me out." However, he is simply focused on the $250k that I brought to the table to begin with. He gives no consideration to what I have established and accomplished throughout the 4-years thus far. I am the one who developed the sales process and trained and mentored the entire sales personnel. 95% of our revenue is generated from a service/program fee that our clients pay us on a quarterly basis. These are 36-month contracts that are auto-renewable. The monthly revenue established from our 1700+ clients is approximately $230k mo.


 


The ultimatum was stated distinctly and clearly which was simply change your management style to mirror mine or we need to part ways (translation: you need to leave). He is reckless and dangerous with his decisions. We are currently dealing with a huge IRS issue for unbeknownst to me, he made the decision to not submit our payroll tax payments for over a year (2012) and used that money to pay bills. The amount is over $200k that is owed to the IRS. He has put me and my family in personal peril which is unforgivable. We are working through an IRS tax attorney now to rectify the situation but this gives you an idea of why I am simply ready to move on.

Thank you Paul, do you believe he would be opposed to enlisting the assistance of an independent third party to assess (determine) the fair market value of your contribution to the non-profit and be bound by such third party's determination (i.e. binding arbitration)?
Customer: replied 3 years ago.

He would absolutely be opposed is my guess but this is exactly what I would want and believe to be fair. Forgive my ignorance but I have no idea how this would play out since we are a non-profit organization. Does this even weigh into the matter? Would the established and sustained revenue from our client contracts be the sole focus as it relates to what is a fair quote unquote "buy out?" Is the focus simply on the trademark and logo that I own 50% of as well?

The fact that it is a non-profit would not have a substantial bearing on the valuation for the purposes of assessing a fair liquidation of your interest in the corporation. The revenue generation would be relevant, and your interest would not be limited to the value of your initial investment. The focus of the assessment would be the actual revenue generated plus the value of intellectual property (manifested by future earnings projections). Do your bylaws speak to dispute resolution? If yes, what do they state as the methods of resolving disputes?
Customer: replied 3 years ago.

In reference to the by-laws, I'm not certain. However, I would simply need access to all the legal docs which shouldn't be too much of a problem for me to get. However, let's go ahead and say that there is nothing in the by-laws regarding dispute resolution.

ok, am I correct to understand that only you and your partner represent all members of the Board of Directors?
Customer: replied 3 years ago.

No, we have a fairly sizable BOD with 9-members.

Great, would the board be amenable to creating emergency bylaws stipulating mandatory arbitration of this dispute?
Customer: replied 3 years ago.

I'm not certain. My partner has basically hand-picked the BOD. These are good, influential people but he most definitely "owns" the relationships with all of them. If we were to involve the BOD then there is alot of information that would need to be disclosed that would not shine a bright light on him. I'm not sure that his argument in wanting me to change my management style to be conducive to his vision of establishing a specific company culture would sway majority agreement by the board. He will need to state the facts as they are with respect that he simply doesn't agree with my blunt way of developing and challenging personnel. I would then be tasked with explaining the additional challenges he placed on the entire organization with respect to how he has mismanaged the company finances. I don't think this is going to be a win-win for either party. Again, I am not wanting this to end up in a bitter dispute nor morph into a revenge type scenario. There are some really good. solid, loyal to the mission personnel that I have personally developed that I do not wish to become collateral damage. At the end of the day, it should always be about the mission itself which I would not want to hurt. However, I cannot just play nice and go away quietly without reasonable compensation. It's hard to focus 100% on the humanitarian mission when my first and foremost responsibility is the welfare of my family. A sticky situation indeed.

Thank you Paul, it is indeed a sticky situation. As a measure to compel an amicable resolution I would advise obtaining a memoradum opinion from the corporation's counsel, if the corporation does not have counsel, then approach the member(s) of the Board with whom you have a relationship to intimiate your concerns and see how much support you may have on the board for compelled alternative dispute resolution, even if via mediation (as opposed to arbitration). I gather that the worst case scenario would be litigation, and that would truly be a lose-lose for all involved. The Board has the power to compel you and your partner to resolve this matter via alternative dispute resoltion amicably . If both partes dig in their heels the operations of the corp could be halted and the parties should keep this in mind. At any rate, I want to make sure your questions are answered. If I have answered your questions, please positively rate my answers, but if you have any follow up quesitons or I have not answered your questions, please do let me know.
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