Hello redditors I do a lot of reading but never post, and it just so happens I over looked going 50/50 with a friend that is going horribly wrong and I’m not sure how to proceed, backstory about 6 months ago me and a old friend were hanging out and I popped a idea into the air for opening a company mainly just throwing it out to see if he would think it would work come to my surprise he wanted in on the buisness but didn’t have funding and said he would (as I’m sure you can guess that never happened) he has no experience with computers but he is a solid how do you say? Worker bee, he can do one task at a time and does nothing in his free time, I’ve handled import of inventory, funding, SEO and sale streams, and I also handle the physical side with him of moving and making inventory (manufacturing) but now we’re at the point of scaling and it’s time for us to put our money together to get large inventory’s sent into (Amazon) and come to find out he just had his car repod, has no money from the money we made from the company already, now I’m sitting here asking why the hell did I put myself in this situation, we have no formal operating agreement (I know, another rookie mistake) I have brought up previously that the work flow was VERY uneven I’m working circles around him day and night and I’m im burnt out, I brought this up to him this morning and I brought up the fact I want to buy out because it’s been 6 months of the same thing with no changes, his response was a outrageous number for buy out and him proceeding to yell at me saying he works more (I can assure you that is 100% not the case) being as I pay the rent completely for the spot we use to manufacture as well as what was stated above. My worry that out of spite he won’t come to a resolution and force me to dissolve?
What should I do in this situation? he won’t pay for mediation or arbitration and I am done letting him leech off what I built, What do I do???
PS I’ll never do a 50/50 again
You can always use the threat of starting a new LLC to try to negotiate a fair compromise. Whatever you do, you need to be honest about why you need to part ways. It may be tempting to make up some other reason to spare his feelings, but rip the bandaid off. “I don’t feel like you are holding up your end of the bargain, and I’m not willing to keep doing all the work for only 50% of the profits.” Point out specific instances where he has not done what he said he would do. He may argue at first, but when you lay out the details, he may come to realize that he is falling short. Usually, people who are failing know they are failing. If you can get him to admit that he isn’t really cut out for this, then he might take a reasonable offer to walk away. If not, then you can use the nuclear option of threatening to file a new LLC and abandon the current one. If he isn’t willing to work in this business, he’s not likely to work or spend money on an attorney to try to save his ownership. On that note, this might be a good time to consult a good corporate attorney before you get into pissing match.
And then never do business with anyone again without a clear Operating Agreement with a good transfer of ownership section, including a buy/sell clause. If you had that, this could be solved in 10 minutes. You offer him a price for his shares, and he can accept the offer, or he can buy you out at the same price. Given that you said he’s not interested in working and had no money, he’d take the buyout. Don’t beat yourself up for this mistake, though. Many business owners make serious mistakes in their company setup, especially with friends and family. I’m currently amending my main LLC Operating Agreement because it doesn’t have any of the stuff I just talked about.