Family Buisness News

Business partnership in Texas. My business partner put up the start-up capital to start the business and in return for doing so he received 55% ownership in the company. The idea for the business was mine and I had the business and professional expertise to run the business; in exchange for this I received 45% ownership. We agreed that I was to receive a monthly payment of $6,000 for managing the company while my business partner waited for the company to be profitable before drawing any form of payment. After a year and a half our business was able to pay back all the initial funding capital back to my business partner. In addition to collecting all his funding monies my business partner think he is owed the money that I collected monthly for managing the company for the last year and a half. This is news to me as we had never previously discussed this and it certainly did not come up when we started the company nor is this stipulated in our partnership agreement. His rational is that because it was taken out as a “partner draw” he is owed this money, and after he collects this money, then we can start to split the profits according to our ownership percentages. The way that I see it is that this was money that was treated as an expense this whole time and it was money that was specified in our agreement to be paid in exchange for my managing the company full time (my partner spends about 15%-20% of his time on company related issues). I managed this business to the point where my partner has collected all his funding monies plus the company has a few hundred thousand in profit in the bank, not to mention that the current value of the company is over 2.5 million. Meaning that in exchange for my salary I made my business partner “business equity” that is now worth well over a million to him. How can my business partner be due my pay for managing the company if it’s not stipulated in our agreement? Is he owned these funds without having to put in the “work hours” that it took to get the company to where it is?
Below is the extent of the language covering the topic in our partnership agreement; you will notice that the agreement specifically states that this is payment for managing the company and not a required part of this agreement. Here is the wording on the agreement.
“Person A is 55% majority holder, person B (me) is 45% minority holder. Person B is to manage the business and receive a compensation for doing so. Neither person’s B management, nor his payment for doing so are a required part of this agreement, but is an additional side agreement reviewed on a monthly basis, cancelable by either party. Once the distributions on the partnership interest is equal or greater than person’s B compensation, he will receive this partnership interest and cash flow as his pay. Once that transition is made, he will then receive all payments when distributions are made. Current payments are taken as partner draws.”

Thanks for your comments.

There are two issues here. The first is a legal issue and if I were a member of the Texas Bar I would answer your question, but I am not.

You can get a definitive answer to your question from a member of the Texas Bar who specializes in business law.

Answers from any other source are from people who like to hear themselves talk and should be disregarded.

The second issue is more basic. The risk of "cutting off your nose to spite your face". Recognize that if you pursue this matter in court you may win but you will lose. That is because a suit may (probably will) lead to the dissolution of what you describe as a very successful business.

While $96,000 isn’t chicken feed if you can’t negotiate some kind of a compromise with your partner and you wish to continue in business with him your best bet is to let him have his way.

If you feel you can’t continue with your partner you should look into dissolving the partnership, taking your 45% of the equity and going into business for yourself — without a partner.

Hope this helps
Jerry-the-bookkeeper