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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Legal
Satisfied Customers: 37052
Experience:  Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
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Hi. My friend "A" has owned a small business for 2 years.

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Hi. My friend "A" has owned a small business for 2 years. In early September this year, he asked if I would partner with him. I agreed to pay $10,000 We agreed we would split the profits + expenses (bills, taxes, rent, etc) 50/50 I was put on the business bank account as a joint holder. The verbal agreement was that he would work as he always had and I would spend a few hours each day, trying to learn the business.
In mid-September, he left town to visit family. Since I still didn't know how to run the store, he asked his friend, "D" to work. "D" only came on 2 days (and I was with him those 2 days) The other (3) days, the store remained closed.
At the end of September, "A" returned and we resumed business. I noticed that at the end of each business day, "A" would take the money from the register and put it all in his pocket. In other words, I had no way of knowing how much the store made day to day. I just to take his word for it.
At the beginning of October, I hired someone, "B" to work for me. He trained with "A" for the first week and learned the ins and outs of the business. By the second week of October, "A" again left town. This time he took almost all the store's money with him, except for $500 which he left for me to deposit into the bank. He had also written a check on the business account for $1000+ for purchases he had made from August to September. When that check cleared, the bank balance fell to below zero. I had to spend $350 of my own money to get the balance out of the red. Since he had taken the previous week's money, there was no money to pay "B"s salary. "A" assured me he would pay me back and pay "B"s salary when he returned. A few days later, the bank balance again dropped to below zero and this time I had to use $250 of my own money to balance the account. Again, he said he'd pay me back.
On October 21, the police came to the store saying the store was suspected of selling stolen goods. The police said they had been watching the store for many months. The police almost arrested me for activities "A" did even before I bought in. The police action was troublesome and resulted in "B" quitting that day. The store closed on October 22 and didn't reopen until "A" returned to town on October 24 Incidentally, the police came again on the 24th looking for more stolen items.
At this point, I felt certain that I had been deceived about the nature of the store's business. I had not known the store was in possession of stolen property. Had I known, I would not have bought in to it. I asked "A" for a return on my deposit, in exchange for his half of the business back. He refused, saying he had already invested the money in another business out of town. I tried many times to resolve the matter, even talking with his family and our mutual friends. "A" is leaving town for good at the end of this month. He will close all the accounts and he has taken back his deposit from the landlord. He claimed he leave half of the inventory for me. That half isn't worth $10,000 I am out $10,000 and left with useless inventory. I feel I was cheated and I'd like to know if there is anything I can legally do to recoup my money.
Submitted: 9 months ago.
Category: Legal
Expert:  Dimitry K., Esq. replied 9 months ago.
Thank you for your post. Please permit me to assist you with your concerns.

I am genuinely sorry to hear that you are in this situation. Is he closing the business completely? Was the business incorporated or was it a partnership that was never formally recorded with the state?
Customer: replied 9 months ago.

I believe he is closing the business. He offered to sell me his half for another $10,000 but I did not want to be involved anymore (after all that had transpired) He had registered it as a corporation before I got involved. His name is XXXXX XXXXX with the Sec of State as the agent; I am not.

Expert:  Dimitry K., Esq. replied 9 months ago.
Kathy,

Thank you for your follow-up. This is a potential problem if you are not on-file--typically what governs is not an oral agreement but how you are listed with the state. If you are not listed, you are arguably not part owner if no documentation exists. Listing you on the joint account is some evidence toward some sort of a business relationship but does not expressly state that you are an owner since you could have been an employee, investor, or even someone who was in charge of payroll or disbursements (as that person is usually listed on the accounts). I am not stating that to attack your position without cause, merely to point out flaws and weaknesses that he may pursue. If you can get him to admit in writing such as email that you are part owner, that would strengthen your position.

As for closing the business, one easy solution is if he formally dissolves the business, you can personally reinstate it under your name. A dissolved business is no longer valid but any partner or even any stranger can re-file paperwork with the state, agree to take over all outstanding debts and interests (if any) and get the business back on the ground. So if you want to pursue that option, should he close the doors, you can, by showing that you were part owner.

As for what he owes you, you can claim fraud and misrepresentation as well as breach of contact, and take him to court both for your initial investment and also for the funds you paid out of pocket. You would need to take him to circuit court because small claims only has a limit of up to $3,000. That means that you would not be able to self-represent as easily and pursue collections. An attorney may be needed. I do partially agree with the attorney that you met that if this going on, whatever can be collected could be eaten up by attorney fees (as such a suit could cost you $6,000-$8,000 in legal fees). Perhaps you could find an attorney willing to pursue this on contingency or by filing for legal fees as part of your suit. There is no guarantee a judge would grant it, but it is an option to consider.

Hope that helps.


Sincerely,

Dimitry, Esq.
Customer: replied 9 months ago.

Since we have been at odds, we have hardly been speaking to each other. How would I know if he "formally dissolves" the business? I know he is leaving town (for good) and he had said he'd leave me half of the inventory. Since he's walking away, does that count as "closing" or "dissolving"? The only paperwork I had that "showed" I was part-owner was the purchase agreement we signed in the very beginning.

Expert:  Dimitry K., Esq. replied 9 months ago.

Kathy,

 

You can check the dept of state website to see if the corporation appears 'active' or 'dissolved'. That would keep you from needing to communicate. No, him leaving is not the same as formally legally dissolving the company--he would need to file articles of dissolution with the state to formally terminate the corporation.

 

Hope that clarifies.

Customer: replied 9 months ago.

Yes that does clarify, thank you. One more thing:, if he neglects to formally dissolve the business, what then? Can I ask the State to put my name on the business instead? Or would I just start over from scratch (new lease with the landlord, new name, etc)

Expert:  Dimitry K., Esq. replied 9 months ago.

Kathy,

 

You are most welcome, glad to help! If he neglects to dissolve, the business remains in his name. The only recourse available is suit for breach of contract (for failing to add you as owner) and for fraud and misrepresentation. The state will not place your name on business without a court order. If you wish to keep the assets, you can solely re-incorporate and create a new agreement with the landlord once the past agreements are voided and terminated.

 

Good luck and please take care!

Dimitry K., Esq., Attorney
Category: Legal
Satisfied Customers: 37052
Experience: Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
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