Ending a partnership--how to handle the loan


2

I would like to end my parternship (50-50 ownership split) but continue to own and operate our Company.

My partner has loaned (formally, in our operating contract) the Company $10k. Along the way, she paid most of our fees and services which have amounted to an additional $8k.

Since telling her I wish to end our partnership, she has said she considers this additional $8k a loan, and thus has "loaned" the business $18k.

This is not a formal loan she ever sought my opinion about, consulted with me on, etc (even via phone call or e-mail, nevermind in formal contract). Now she would like to be "bought out" for $18k and have her debt recouped upon transference of Company. The terms for the original $10k state the loan shall be repaid by Company in October 2013. There is no documentation for the $8k.

What is she legally owed if I take over our business as 100% stakeholder? Anything? $10k? $18k?

Thank you,
Sarha

Partnership Dissolution

asked Mar 27 '13 at 11:01
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Sarha
11 points
  • Just pay the $18k and have an amicable resolution. Any dispute will probably cost more than that in time, distraction and stress. – Steve Jones 10 years ago

2 Answers


2

If the business legally and legitimately incurred the additional $8k then you may be obliged to pay the $8 along with the initial $10k

You should refer back to your partnership contract which should outline some key points, such as:

-Under what circumstances partners are allowed to incur additional debt without consulting other partners (re the $8k additional debt that you are looking to challenge)

-The full terms of buying out a partner, along with any conditions that may come along with that (such as paying them out any money they've put in, or only being able to take over if both parties can come to an agreement)

If you find that your contract clearly outlines that any debts/costs must be agreed by both parties you may which to challenge this. Contracts sometimes say 'reasonable amounts' or 'day to day amounts' don't require authorisation by both parties, sometimes the contract says nothing at all, it's important to check.

If your contract does not outline this, you may want to seek professional help, although if you feel this costs were legitimate, you may want to ask if yourself if you have a moral obligation to pay them, or if you're ready to go to court over it should the other party feel strongly about it.

answered Mar 27 '13 at 12:24
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Drew Khoury
121 points

1

It looks like the $10k is beyond doubt.

On the other $8k, you've also got the moral obligation that everyone is acting in good faith; if you were aware these payments were happening, or even if you we're aware you were using services that cost this kind of money, then you should be obliged to cover it.

Especially if these loans are interest free, you've had access to very cheap finance - you should be grateful.

If you don't want/ can't pay it in cash, perhaps you can use equity to repay it.

Also, if you're 50/50 shareholders, the other person owns half of the company and so would still own 50% of the company despite the fact that you don't want them involved operationally. Did your agreement include provisions for this scenario? Do you have the right to fire them, are there good/bad leaver provisions that would allow you to claw back some/all of their equity? If not, you'll need to come to an agreement to transfer their 50% to you, and they may expect payment for their share.

answered Mar 27 '13 at 17:25
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Craig Edmunds
21 points

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