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Zachary
Zachary, Attorney
Category: Legal
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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Hello, I have a question on the process, forms, and terminology

Resolved Question:

Hello,

I have a question on the process, forms, and terminology of a breakup of partnership/transfer of ownership. I am supposed to get an agreement letter over to my partner today.

I had 4 agreement letters half way finished up when I realized the message in the letters seemed to be understood but my terminology, eh.

My partner and I have had a general partnership for 2 years with 90/10 ownership with me having 10. He has agreed to "sign the company over to me" for $2395.00. He is surrendering any present and future monies coming in whether those monies were a result of past, present, or future company operations and signing everything over to me completely. I had an agreement of withdrawal from partnership and distribution of assets, company purchase agreement, agreement of bank account closure, and agreement not to work with a competitor worked up and at first I didn't care about the terminology as long as I get the message across but then, I wondered if I could get caught up on improper wording or a technicality.

In return for my payment, my requirements are, and he has agreed, to receive the marketing advertising PPC campaign that he created complete in it's entirety so I can realize the same conversion rate that we were receiving before with everything unchanged, the website, which I have already been given, an email sending service account that we have all our previous leads in which will be transferred solely to my name, and not work with competitors in the industry.

So are we talking leaving/buying/selling/termination/withdrawal/dissolution of partnership or all of the above? And is this a two part process? End of partnership and beginning of sole proprietorship?

Fictitious names of San Diego county says that in terms of the fictitious name, which I want to keep, he (I can file it since it's a partnership (but can I since I have less than 51% ownership?)) has the option of filing a form of abandonment or a form of withdrawal of partnership. Everyone there says that I should have him file for withdrawal and not abandonment, lol, but if he withdraws then the company isn't a partnership anymore, isn't it, and it, and I, would be a sole proprietor, different form a general partnership which changes the structure and ownership of the biz, which means I need a new EIN or Federal Tax ID, making it a new company or change of ownership?

One of my concerns is too keep the length of time on record that the biz has been open. Many business relationships won't even talk to you unless you have been in business more than 2 years, such as applying for business lines of credit with banks.

I have also talked to the IRS, but I don't care about those blood suckers for now, just the legal part.

Thanks,

Kevin
Submitted: 10 months ago.
Category: Legal
Expert:  Zachary replied 10 months ago.
Hi,

Thanks for your question.

Is the partnership actually registered with the State?

Are the bank accounts in the partnership's name, or is it in the name of the other partner?

Other than bank accounts, are there ongoing customer accounts that are in place?

Are there outstanding contracts with the customers?

Are there outstanding contracts with vendors?

Do you want to be a sole proprietor, or do you want to convert the partnership into a corporation of some sort?
Customer: replied 10 months ago.

Hi,


 


Ha. That was my other question, as far as the partnership being registered with the State (CA). I don't know, I am on hold right now with the IRS to give our Federal Tax ID to see if they can tell me any information on whats registered, or how, or when on there end. The only thing I signed when we started two years ago was a fictitious names document and our agreement to go into business together with 90/10 ownership. I have a sole proprietorship with a separate business in my name and I pay a business tax certificate every year. I called the city of San Diego and they have no record of a biz tax cert in our company name.


 


We opened the bank account together in person at the bank in both our names and our account has 50/50 account ownership with the bank so either one of use can withdraw, make changes, or close the account. He gave or the bank found our EIN number, which to this day I am not sure is legit or not. The bank account is negative $100. I told him yesterday I will close it myself and pay it off and he agreed.


 


As far as ongoing customer accounts and contracts, we are an authorized retail for HughesNet Satellite Internet. All the contracts and accounts with customers are directly through them. We do get residual income every month but that is from HughesNet directly. We set up orders online and over the phone and that's it, HughesNet takes over from there. They bill the customer, the service is in their name, and they provide the contract and customer service. Then we get paid from HughesNet. We do charge a one time processing fee to each customer when they sign up.


 


We do get charged back on cancelled customer orders which I have agreed to pay myself.


 


Outstanding contracts with vendors? Not that I know of, we just have an email sending service that we pay for that I am taking over and it's month to month.


 


Yes I want to be a sole proprietor.


 


I just got off the phone with the IRS and girl was so unhelpful. I told her I wanted to verify an EIN because I didn't know the type or date, etc. She said well those are the questions we use to verify you so if you don't know the answers to those questions then we cant verify you. I asked her which questions exactly. She said type. I said partnership. Then she asked my title and phone number, which I gave. Then she asked for my social security number. I cut her off right there before I gave it to her because I felt she is being misleading. She said we need that to verify you. I said no thanks and I hung up.


 


 


Thanks,


 


Kevin

Expert:  Zachary replied 10 months ago.
Thanks for your reply Kevin.

You are on the right track in terms of the type of agreement you are putting together. You will simply want a "Partnership Dissolution Agreement" in which you both agree that the partnership is dissolved and in which he transfers all the interest in the business to you in return for you payment. In order to do this, what you really need is "due diligence." In other words, you need to identify all the assets and locate all the information on the business.

The IRS will not provide an EIN number to the public. So you need to get your soon to be ex-partner to give you the information showing that the EIN is verified (there should be tax statements or something coming from the IRS with the EIN on it. When you call in to verify, they do need your social security number (or more than likely will need your partners social security number) so that they can verify the EIN for you.

It sounds to me that the main issue of importance is the business name and the contract you have with Hughsnet to be an authorized dealer.

Where are all the business files?
Customer: replied 10 months ago.

What business files or information exactly? I don't know. He was handling all that. As far as due diligence, we don't have any assets, we operated at a loss. There is residual money of about $1000 coming in every month but he is forfeiting that in return for my upfront payment.


 


As far as tax statements, our license with HughesNet is under my social security number. I received a tax statement from them or from the IRS but with my social security number. I think the tax info hasn't been filed property and I am going to work on getting that fixed with my tax guy.


 


I would rather verify that EIN on my own, if I have to give them my social security number I guess I will.


 

Expert:  Zachary replied 10 months ago.
Since you are buying him out, you want ALL of the business files. You will want to have everything that is in his possession that is related to the business. He shouldn't retain anything, or if he does, it should only be copies.

If both you and he opened up the joint bank account and the tax statements for the business are all under your social security number, then I would bet that there actually wasn't an EIN in use. What makes you think that there was one?

And just so I'm sure I understand, that as far as Hughesnet goes, they are doing business with you only and the residuals are being paid to you only?

If you provide me with your business name, I will check to see if there is anything I can see that is filed with the state.

Customer: replied 10 months ago.

When we opened the bank account he gave them an EIN number. Where he got it or where they verified it I have no idea. I have that EIN number in my possession. I did some searches online under the business name and I couldn't find anything. And yes as far as HughesNet goes everything is under my social security number and business is only with me. The license is in my name only. They ran a credit check 2 years ago under my social when I applied.


 


I don't want to communicate with my partner other then to get him to sign what I need. Our relationship is extremely sour. We just want to part ways.


 


The business name isXXXXX It is actually spelled Satelite Internet USA (with one "l" in Satellite) with the fictitious names department with the county of San Diego. Which I verified with them yesterday is their mistake that they are changing it to the correct spelling within the next couple of days.


 

Expert:  Zachary replied 10 months ago.
Thanks,

I am not finding this name as registered with the State. That would indicate to me that this is a plain vanilla partnership. He may have never filed anything with the state or with the county. However, just in case there is something that was filed, you will need to file a Dissolution of Partnership once you have him sign the papers.

This form can be found at: http://www.sos.ca.gov/business/gp/forms/gp-4.pdf

So, the bank account seems to be the only business related thing that is connected to the EIN. If you have not been using it when you file your taxes, then I would say that the easiest thing to do would be to simply have him sign the Dissolution of Partnership Agreement, transferring to you his full and complete partnership interest, including any interest at all in the good will of the business, the business name, in any clients of the business, assets of the business, accounts receivable of the business, accounts payable of the business, bank accounts, and any of the business fixtures/machinery/furniture.

You can also add in the non-competition agreement, but you need to make sure that it is supported by consideration. So, I would reserve part of the payment for this (say $1000 out of the $2395). In other words, in your separate non-competition agreement, you state that for consideration of $1,000 paid to him, he agrees not to compete.
Customer: replied 10 months ago.

I have the agreements ready, including the non compete. We will see how it goes. I won't present the state of California document until I get our signed agreements first, like you said. The document link you provided has a "Secretary of State File Number" on the top right. Where might I go to find out what file number is XXXXX with the EIN number that I have?


 


Thanks!


(I am giving you 5 stars)


 

Expert:  Zachary replied 10 months ago.
Thanks for the 5 star vote. I'm glad you are happy with my service.

The EIN number will not likely be associated with the General Partnership in the state's records, as it is not part of the information which is required to file the General Partnership with the State or the County.

My understanding of your circumstances is that San Diego county did not have a record of your general partnership. You would contact the Secretary of State at (NNN) NNN-NNNNand ask for Business Entities to determine whether there has been a General Partnership filing associated with your business (you might be able to search by your name or your partners name).

This might be a situation where there was never any general partnership filed with either the state or the county. It is not absolutely required by the law to file as such because it is not a separate business entity (i.e., the general partners are personally liable for the business debts). If there is no such filing, then there does not need to be any dissolution filed with the State. Your private agreement will be enough to serve as evidence of the dissolution should there ever be a disagreement.
Zachary, Attorney
Category: Legal
Satisfied Customers: 3634
Experience: Lead trial/International commercial attorney licensed 11 yrs
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