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MShore, Attorney
Category: Legal
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Experience:  Negotiate, Draft, and Review many complex commercial agreements each year.
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a friend and I started a business 5 years ago, We registered

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a friend and I started a business 5 years ago, We registered with the state as a partnership. We both invested $25,000. My partner controls the day to day business activity and I sell the product. The first 2 years we made enough to cover all costs ( not including salaries or commissions ) but no profits. The last 3 years we have made $100,000 net income. My partner has taken all the profits and states the company owes him back pay to day one ( $75,000 per year ) based on a conversation before the company started that the company would pay him that amount. We have no legal documents other that being registered as a partnership. Information: I have a second job where I make a very good income. My partner is a stay at home dad and was looking for a way to make some money as he raised his daughter. We never discussed any type of salary other than a off the cuff statement that I would agree he earn $75,000 per year.
My partner has averaged working 10- hours per week. My questions.

1. Does he have the right to take all profits?
2. What can I do to exit the business.
3. I control the sales and can move the business to other manufactures. What responsibility do I have to the company?
4. Has my partner broken any laws?
Thank you for the post, I am happy to assist you by answering your questions. Is there any partnership agreement in writing?
Customer: replied 4 years ago.

No. Just the registration with the state of MN. Mn does not require and legal documents for a patnership.

Thank you,

1. no, absent a written agreement either party's entitlement is presumed to be 50% of the profits.
2. To exit the business require an executed partnership dissolution filed with the state whereby your partner assumes sole control and liability for the business.
3. You have a fiduciary obligation to act in the best interests of the business so long as you are a partner in the business.
4. No, in truth, the situation you find yourselves in is the result of a failure to document the terms of your partnership, this needs to be cured so as to stipulate each partner's compensation, profit distribution, and obligations to the partnership post association with the business (i.e. restrictive covenant).
Customer: replied 4 years ago.

If he does not have the right to keep all profits what are my options? He is referring to his salary as guaranteed and payable back to day one. This is based on a conversation where I agreed he could make $75,000 per year. I allowed him to take the profits for year 3 and 4 to make up for not making any money the first 2 years. He now informed me he is taking $75,000 back to day one based on our initial conversation. That equates to $375,000. He now works an average of 20/week. He has taken $200,000 to date. The company has net income of $130,000/year.

Your options are to sue him for the return of the profits retained in excess of 50%, or negotiate an amicable resolution.
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