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Zachary
Zachary, Attorney
Category: Legal
Satisfied Customers: 3993
Experience:  Lead trial/International commercial attorney licensed 11 yrs
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My wife and I started a company with a silent investor who

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My wife and I started a company with a silent investor who also had 49% ownership in 2010. We pulled money out to remodel our kitchen since the office was ran out of our home. My silent partner did not like that after he found out and threatened us with jail time. He in lieu of us going to jail stripped my wife of her 51% ownership and reallocated ownership %'s to 55% to himself, 25% to someone with no knowledge in HVAC industry, and 20% to myself. He is very wealthy and threatened several times either jail or suing us if we did not agree to his terms. Is this legal?
Submitted: 1 year ago.
Category: Legal
Expert:  Zachary replied 1 year ago.
Hi,

Thank you for your question and I'm sorry to hear about your situation.

First of all, I need to understand exactly what kind of company you had.

Were you an LLC, a C-Corporation, or a Limited Partnership/LLP?
Customer: replied 1 year ago.

LLC

Expert:  Zachary replied 1 year ago.
Thank you for your response.

So, based on what you are telling me, you and your wife were designated as the managers of the LLC, and you, your wife, and the investor were the members of the LLC.
Customer: replied 1 year ago.

At time of this event I was a manager not a member. My wife was a manager/member. Investor was member only.

Expert:  Zachary replied 1 year ago.
Thank you for clearing that up.

As the managers of the company, you made a very serious illegal move by pulling money out of the company to remodel the kitchen. This is likely a breach of fiduciary duty, breach of contract, and potentially fraud. These sort of claims carry potentially heavy penalties if your are found liable in a court.

The fact that you both were managers/employee of the company and participated in pulling money out of the company could also be charged as embezzlement/theft. This could potentially carry with it a criminal charge.

Were you and your wife able to pay back the amount you took out of the company?
Customer: replied 1 year ago.

Yes. Does your answer still apply if we were instructed by investor to pull all the money possible out of company even if it meant a loss to company until he final-ed his divorce? So this money was considered part of our compensation.

Expert:  Zachary replied 1 year ago.
No,

If the investor agreed to removing the assets from the company, that would absolutely change everything.

You can pull out money if everyone agrees to it. And if he was trying to remove money to hide his assets from a divorce, this is a fraudulent move by him.

So, operating under the assumption that the investor did agree to you pulling out the money (and you can prove the same), then his assertions of criminal liability are false.

Further, he cannot simply take away your wife's membership interest and give it to someone else. This is fraud and conversion.

You could sue him for this.

The problem you are going to face is going to be in enforcing your rights. How much would you say your wife's 51% membership interest was worth?
Customer: replied 1 year ago.

At the time the company only had gross revenue of $490K and at this point of this yr company is at $1.2M

Expert:  Zachary replied 1 year ago.
That's a lot of money at stake.

The only thing you are going to be able to do is sue him and the new investor for fraud, breach of fiduciary duty and conversion. The issue you will have is that you removed money from the company and will need to establish that there was an agreement do to the same and that it was money owed to you as compensation in some form or another.

This is actually going to be a complicated legal matter. My best advice is that you need to take all the documents and all the evidence of the transactions and go and see a local attorney for a full analysis of your case.

Be aware though, this will definitely disrupt your operations if you sue him. He is likely going to counter sue you. Then you run the risk of losing (no one can predict accurately what a jury will do). If you lose, then you lose it all most likely. If there is a 1.2M per year revenue stream going on right now, then you need to weigh the potential of losing everything vs. the value of keeping the revenue stream going without interruption.

Please let me know if you have any questions. Please also kindly consider rating my answer positively so that I am compensated for my work by the website. Rating does not cause an additional charge and will not prevent us from further discussing your questions.

Best Regards,
ZDN
Zachary, Attorney
Category: Legal
Satisfied Customers: 3993
Experience: Lead trial/International commercial attorney licensed 11 yrs
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