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I have a former business partner who is claims i owe half of

legal bill accumulated due to...
I have a former business partner who is claims i owe half of legal bill accumulated due to another partner filling personal bankruptcy and we were trying to salvage firm. I initially agreed to some but asked him to keep me posted. i never heard anything more and 9 months later firm is shut down and he claims i owe him 6K. nothing is left in firm assets and he put all legal charges on his personal credit card. i am willing to pay half of first thousand as verbally discussed. no paperwork was ever executed for this expense. am i liable for this expense put on by him without my knowledge? he claims it had to be done. Thank you.
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Answered in 11 minutes by:
7/30/2012
TexLaw
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4,430
Experience: Lead trial/International commercial attorney licensed 11 yrs
Verified

Zachary D. Norris :

Hi,

Zachary D. Norris :

I'm happy to help you.

Zachary D. Norris :

Are you there?

Zachary D. Norris :

Since I haven't heard from you, I'm assuming either the system is slow or that you are away from your computer. In this case, I will switch over to the Q&A format which will allow us to continue our dialogue, just not on an instant message basis. Please look for my response.

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Please answer the following questions:

1. Are you certain that the business was a partnership as opposed to a limited liability company or limited partnership, or some other such business entity?

2. Was there a written partnership agreement?

3. Were the legal fees incurred by a lawyer representing the business in filing a claim in the 3rd partner's bankruptcy proceedings?

4. Have you been able to see the bill?

5. Has the partnership/business entity been formally unwound by a court?

I look forward to hearing back from you.
-ZDN
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Customer reply replied 5 years ago
i am sorry i was away. here are my answers
1 i was an llc i am 99% sure

2. not that i recall with this person.

3. 3rd partner filed bankruptcy. fees to lawyer were paid out of remaining funds in firm.

4. no but i believe it is accurate.

5. i believe so.

i am sorry for my lack of difinitive information. this happened a year ago and i have gone through marital separation and was wrapped up in that. thank you.
So were the lawyer's fees incurred on behalf of the business or for the 3rd partner only?
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Customer reply replied 5 years ago
the fees in question were incurred on behalf of the business to take control of business from 3rd partner after he declared bankruptcy and refused to cooperate with transfer. i however had no communication how much this was costing and never heard the amount incurred until 2 months ago.
As there is no LLC operating agreement that you have identified, the LLC is controlled by the Illinois Limited Liability Company Act.

Sec. 10-10. Liability of members and managers. (a) Except as otherwise provided in subsection (d) of this Section, the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager.


So, the good news is that you are not personally liable for the attorneys fees incurred by the company. That means that only your share of the LLC's assets are liable on the debt. If there are no assets, then there is no money owed by you.

In this situation, the attorney should have made sure to ask for payment up front or should have made one of the members of the LLC personally guarantee payment.

Because the LLC is going out of business, you will want to file a dissolution with the state.
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Customer reply replied 5 years ago
thank you. 2 last questions. i took some money out of llc while things were still operating. can he come after that? that was last year. 2nd, is there any documents or information i should request from him? it is possible the llc is already dissolved. the attorney doing the work in behalf of our llc was paid but by the partner who is now coming to me for half. this is between me and the partner.
When you say you took money out of the LLC, was this in the form of a distribution that was agreed to by the other partner? Did he take an equal amount out?
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Customer reply replied 5 years ago
i had control of the money and i took money to pay bills and take a draw as i was the one managing the client accounts. This money has not been questioned as of this point. he has not taken any out. i took about 6k over 11 months.
Technically, you would owe the LLC the 6K back if it was taken out as a draw. So, you could potentially be liable up to $6K, unless you had repaid the draw.
As far as the documents go, you need to ask for copies of the attorneys fees and you also need to ask for any documentation that he may have filed for the dissolution of the LLC.
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Customer reply replied 5 years ago
even if we were not in bankruptcy at the time? also, i do not believe he was a partner at this time, only investor. he became partner when all legal work was done after bankruptcy. the other partner took the majority of the money and declared bankruptcy. i am still owed based on value of my work approx 40k. can they go after this personally then?
This depends. When you say you are owed for the value of your work, were you receiving a salary that you were not paid or were there commissions received by the LLC which were not paid to you?
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Customer reply replied 5 years ago
we charged monthly fees. 3rd partner paid himself and i took much less as he had financial trouble. I was entitled to 40% of fees but was never paid that much. i took the 6k after the other partner turned over books to me. also paid vendors who were owed.
Was there any written document setting out this payment arrangement?

When you charged the company fees, did you send invoices?

How were the fees calculated?

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Customer reply replied 5 years ago
only based on percentage of company owed. we were taking draws as needed.
fees were charged on a annual percent basis, were were a registered investment advisory. we were paid daily for some and quarterly for some. no invoices it was based on agreement when clients retained.

fees were 1-2% per year.
As that is the case, I think you have a good argument that the $6K you owe back is offset by the $40K the company owed you. Thus, your capital account is a negative $36K. I think you are safe to tell the demanding partner that he doesn't have a leg to stand on.
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Customer reply replied 5 years ago
thank you
Best of luck
TexLaw
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4,430
Experience: Lead trial/International commercial attorney licensed 11 yrs
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TexLaw
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