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Dwayne B.
Dwayne B., Attorney
Category: Business Law
Satisfied Customers: 33404
Experience:  Practicing for over 20 years and helped a number of businesses with litigation.
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I am a 50% owner with my partner in an S-Corp in California.

Customer Question

I am a 50% owner with my partner in an S-Corp in California. We have both grown our separate ways and recently, I discovered my partner has started another company with a similar product that we currently sell without telling me. He has repeatedly lied to me about it and I have heard from other employees and outside contacts that he has only said negative things about me. I believe there are some jealousy issues at play but that is another story. I am concerned with the direction that this is going and fear that should his other business start producing a viable income for him that he will already spend less time on the business than he is now. I have to make sure that I don't leave myself and my family exposed should that happen and and ready to move on and possible start another business without dealing with any partners. We currently have about $120K in debt and $140k in receivables. Much of that debt is to his uncle so he will never voluntarily dissolve the corporation and is trying to do anything he can to bad mouth my reputation so in his mind, I don't have a chance to find a better opportunity. I am ready to move on, put this behind me and start again but am unsure as to what the next steps are.

We have no buy/sell agreement and I have recently started the other company following my discovery of his other business. I've had to generate all new customers with that business and even though they are very similar (products sold etc.) they have totally different customer bases. It generally takes a good 120 days for the accounts to start paying regularly so I had to start it before I left otherwise I would be left with no income. With the knowledge of certain facts about his business that he is unaware of my knowledge (had to do my due diligence) he has lied to my face looking me in the eye so I fear there is not going to be an amicable split (especially considering the debt that is owed to his uncle that I never personally signed on and wasn't even aware of much of the loan until after it was already given to my partner and I saw it in our bank account. I want to protect myself personally and the new business should he ever find out about it legally and also make sure that my past 5 years of effort didn't go to waste in the dissolution.
Submitted: 6 years ago.
Category: Business Law
Expert:  Dwayne B. replied 6 years ago.
Is there a specific question I could help you with?
Customer: replied 6 years ago.
Sorry, I know I gave you a lot of information and the question may have been lost amidst all of it. My question is, should I go to my partner and tell him that I want out and he tells me that he doesn't agree, what are my options, how would we decide on what we each split (there is inventory, equipment, outstanding debt, plus receivables), and can he try to sue me if he finds out about my other new business that has a totally separate customer base (even though he started his own company as well)?
Expert:  Dwayne B. replied 6 years ago.
I'll start with your last question first, he can certainly sue you but based on the facts he isn't likely to win. If you decide to split and your partner doesn't agree you have to sue for a division of the company and assets. Realistically what you both should consider is probably mediation or arbitration to keep from spending a lot on attorney's fees while you're arguing. Arbitration is where a person acts like a judge and divides the property whereas mediation both of you sit down with a trained mediator and try to come to an agreement as to division. You can, and probably should, have lawyers represent you in this as well because they often can tell you from a semi-neutral position what is likely to happen in court and the costs involved.



Thank you for allowing me to assist you. As you know, we work on the honor system here and cannot always provide you answers that you like. I believe I have answered all of the questions you asked so I would request that you please click the ACCEPT button so I receive credit for my work and leave feedback if you have a chance. Please consider clicking "BONUS" as a nice way of saying "thanks" for a job well done, although this is neither required nor expected. Please remember that we can only base our answers on the information you provide and sometimes a misunderstanding as to what you are looking for or already know occurs so feel free to ask additional questions. Please be aware that my answer is not legal advice, it is merely information. You should always contact a local attorney for legal advice.



Several customers have asked how they direct a question to me in particular. If you specifically want me to provide information for you just put “FOR JD 1992” in the subject line and I will pick up the next time I am online.



Customer: replied 6 years ago.
A little more clarification on the dissolution side, if I were to go to him today and tell him of my decision and he tells me he doesn't agree, what form/process do I need to follow up with to start the involuntary dissolution process?
Expert:  Dwayne B. replied 6 years ago.
You have to file a lawsuit and as far as I know I've never seen a form for that type of suit although there is form site that would have it if anyone would. There is a problem going directly there but of you go to www.TexasParoleNow.com and click on the link on the left sidebar that says "Why Pay More" it will take you to the site. The suit you will file is usually titled Petition for Dissolution of Corporation. They are a little technical and so if there isn't a specific form you should consider hiring a lawyer or at least a paralegal to draft it for you. After you serve him with a copy of the lawsuit you can then file a Motion for Mediation and ask the court to order the case to mediation to try and resolve.



Thank you for allowing me to assist you. As you know, we work on the honor system here and cannot always provide you answers that you like. I believe I have answered all of the questions you asked so I would request that you please click the ACCEPT button so I receive credit for my work and leave feedback if you have a chance. Please consider clicking "BONUS" as a nice way of saying "thanks" for a job well done, although this is neither required nor expected. Please remember that we can only base our answers on the information you provide and sometimes a misunderstanding as to what you are looking for or already know occurs so feel free to ask additional questions. Please be aware that my answer is not legal advice, it is merely information. You should always contact a local attorney for legal advice.



Several customers have asked how they direct a question to me in particular. If you specifically want me to provide information for you just put “FOR JD 1992” in the subject line and I will pick up the next time I am online.



Customer: replied 6 years ago.
Thank you for your repsonse. Just to clarify a few things you answered...

1. It is my understanding that unless we had something explicity written in the buy/sell agreement that is non-existant, it is not illegal to start another business without my partner's knowledge as long as I am not raiding the client list and have a separate client base, he doesn't really have anything to base a lawsuit off of (even if both businesses have similar business models). (I know anybody can sue for any reason but I am more concerned about any possible viable lawsuits.

2. If I want to end my partnership with my partner (both of us are 50/50 owners) then unless he consents and we come to some sort of agreement, I would have to hire an attorney who would file a Petition for Dissolution of Corporation.

3. Just like when I found out about his other business other than hurt feelings there is nothing legally that either of us are doing wrong as long as we are not taking the companies' client lists and employees, inventory, etc...

4. Since it is a corporation, unless there were any debts that I personally guaranteed, then it would not pierce the corporate veil unless it is tax related or it appears that the corporation is running "sideline" to an indivual (basically one and the same), which it is not.

Expert:  Dwayne B. replied 6 years ago.
1) Basically this is a correct statement. You each have a duty to the company, but this doesn't automatically mean you can't have another business, particularly if it is unrelated or doesn't have the same customers.


2) Correct.


3) Correct, to the extent that you are not doing something that is hurting the company you both belong to.


4) That is correct as long as it was operated as a corporation and not as an "alter ego" or "shell" corporation. If you followed the formalities then it provides protection.



Thank you for allowing me to assist you. As you know, we work on the honor system here and cannot always provide you answers that you like. I believe I have answered all of the questions you asked so I would request that you please click the ACCEPT button so I receive credit for my work and leave feedback if you have a chance. Please consider clicking "BONUS" as a nice way of saying "thanks" for a job well done, although this is neither required nor expected. Please remember that we can only base our answers on the information you provide and sometimes a misunderstanding as to what you are looking for or already know occurs so feel free to ask additional questions. Please be aware that my answer is not legal advice, it is merely information. You should always contact a local attorney for legal advice.



Several customers have asked how they direct a question to me in particular. If you specifically want me to provide information for you just put “FOR JD 1992” in the subject line and I will pick up the next time I am online.