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I was a salaried employee (receiving a 1099) for a company

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for a while until we...
I was a salaried employee (receiving a 1099) for a company for a while until we went into business together and opened two ramification to the current business. One was a corporation where I had 49% and he had 50%, we both put the same amount of money to buy a truck. Later he decided to purchase two more trucks for what he says he used his own personal money. We had unreconcible differences for what he decided to terminate me immediately and close the corporation. He says he will sell the one truck and collect all the money that the business owed him and if there is anything left over that is what i will get.
Additionally, we opend another company as a LLC where i was also half owner. This business is still operating.
What are my legal rights and what can I expect out of all this?
Submitted: 5 years ago.Category: Business Law
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2/3/2012
Business Lawyer: WiseOwl58, Attorney replied 5 years ago
WiseOwl58
WiseOwl58, Attorney
Category: Business Law
Satisfied Customers: 3,894
Experience: Senior Associate at White & Case LLP
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Thank you for entrusting us with this important business question of yours.

I will attempt to answer each part of it for you.

First, let me point out as an initial matter that if you were receiving a 1099, you were technically not an employee of the company but rather an independent contractor. An employee would receive a W-2 form, but that doesn't really matter for this analysis. Just for the record.

Second, as to the sale of the truck, you say that you put in equal amounts of money to buy what we will call Truck A and he put in his own money to buy Trucks B and C.

So, if this was done properly, the corporation should have debt to each of you for the amount of money that you put in for the trucks.

The board of directors needs to make a decision as to which truck to sell. Once that decision has been properly made by the board, and the sale of one of the trucks authorized, the debt should be repaid to the party that provided the money for the purchase of the truck in the first place.

There has to be a fair decision about which truck should be sold. The entire board must make that decision after discussion and analysis of what is in the best interest of the company, not who should get repaid first.

Then, as to the dissolution of the corporation, the rule is that all of the debts of the corporation must be paid off first, and then whatever money is left over should be distributed among the shareholders.

So, in this scenario, the corporation would have to repay each of you for the money that you put in to buy the trucks (or distribute the trucks in kind, i.e., give each of you one or more of the trucks, depending on how much it is worth) and then any remaining assets of the company would be distributed according to the ownership percentages that you indicated.

I trust this is useful for your purposes. Please press the green ACCEPT button. Thanks.
WiseOwl58
WiseOwl58, Attorney
Category: Business Law
Satisfied Customers: 3,894
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Customer reply replied 5 years ago
I received a 1099 but I had a schedule to abide by, hours to work and I was always treated as an employee, even after I became "partner". As for the trucks, he has informed me that he has two trucks for sale and is keeping one, however he claims the truck company owes him personally $60 thousand dollars and he will be using that money to pay that debt. My concern is that this debt was never in writing (#1) or approved by me as a partner, therefore if there is an outstanding loan, I'm not only not aware but did not authorize to assume such debt. I know the company has been performing poorly and that is why I suggested yo sell the trucks over a year ago. That idea s shut down by him, however, idont have anything in writing.

Also, as far as the other company that was opened as a LLC and is still operating, does he have the legal right to just erase my name with the state and be done, without owing me anything?
Business Lawyer: WiseOwl58, Attorney replied 5 years ago
No, he cannot do any of this. He is engaging in what is known as self dealing. That is when a director or officer gains personal advantage from his position. Everything must be done on an arms length basis with full disclosure to the company.

You have full rights to be repaid, just as he does. He cannot prioritize his debt over yours and you should not allow him to do that.

As for the LLC, he is not able to just erase your name from the equity that you have in the company. If he attempts to do that, you just report to the secretary of state that it is not an authorized company action. They will not accept it on that basis, and you may be able to get the attorney general involved.

The two of you may consider going to mediation to settle your differences and come up with a global settlement financially as to all of these issues. If you can get him to agree to that, it may be fair to both of you and avoid litigation, which is where it feels like this may be headed.

Best of luck. Please press the green ACCEPT button.
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