AboutTimmy Chou Expertise I am a experienced Mediator and a partner in a management consulting firm. As a mediator I work as a third-party neutral and specialize in partnership/shareholder disputes, management/labor issues, company culture difficulties, and family-owned business problems. I can help describe why alternative dispute resolution may be a good choice for you. As an experienced management consultant I may be able to offer creative ideas to help resolve your organizational and business problems and disputes. "If you say conflict, I say opportunity".
Question We had a import business for 3 years with a silent partner. In the last two years of operation there was a profit that was split between the two of us ($50,000). The silent partner wanted to quit his job and work for this business full time with a starting salary of $100,000.00. I have another business which I solely own and wanted out of the business with the silent partner. I spent too many hours a week working and with the salary he wanted it would be a long time before I would ever see profit for myself. When I told him I no longer wanted to be involved with the business, he was upset and said that he did not want the business. We closed the business and split the remaining profit. My business purchased from this business that closed. So I started purchasing direct from China and now the former business partner says that I deceived him and he wants me to discontinue buying from China or he wants 1/2 of profit. We never had such an agreement and does he have the right to demand this over me?
Answer Thank you for your question!
In my answers I always note that mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement.
The case you describe here is common unfortunately. Note that this may have legal factors and you may wish to consult an attorney.
The answer is your ex-partner has no legal grounds to your profits, nor should he be dictating the conduct of your business.
Your ex appears to not understand the difference between compensation as an investor and compensation as an employee. The employee works in the business and is a key element to the businesses success. The employee should be the best qualified and the business should be prepared to pay market rates for the labor of the person. Sometimes an investor plays this role, but the investor should not expect a bigger paycheck than the job would normally command in the marketplace, nor should the investor take a discount and work for less.
The Investor takes a profit after the usual and customary expenses of the business are paid. Any business should be evaluated as to its investment quality with a fully staffed labor force at market rates. If the business is not profitable fully staffed, it is not a quality business and not a worthy investment prospect.
It sounds like you were a partner that worked for free and then you split the profit with a partner who only got the profit because you worked for free. Be glad to be out of this arrangement.
It is best to have as much structure created at the outset of starting or building a business rather than in the middle because there are inevitable assumptions and expectations created by each party.
I always urge my clients to have very specific structure designs and very specific sets of job descriptions tied to very specific rewards. In cases of "friends", even more so, and in cases of family businesses, more still.
These are some ideas. Feel free to follow up with additional questions.
For your general information, the pros and cons of the types of dispute resolution methods follows.
GOOD LUCK!
Arbitration, Mediation, and Litigation
Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system
Benefits of Arbitration:
Confidential, no public record
Limited exchange of documentation, information
Quick, don't have to wait for a court date
Arbitrators have expertise in the subject matter and are trained in conflict resolution
Cheaper than litigation
Preserves business relationships
Negatives of Arbitration
It's a compromise, no 0 winner
Complex arbitration can be costly
If not satisfied, may litigate the arbitration procedure
Poor results with an unskilled arbitrator
Both parties must agree to cooperate in the process
Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.
Benefits of Mediation:
Neutral mediator can objectively suggest alternatives not considered before
Parties are directly engaged in negotiating the settlement
Can be quicker than litigation
Less costly than litigation
Preserves business relationships
85 of American Arbitration Association cases mediated find successful solutions
Negatives of Mediation
may not reach a binding decision
unskilled mediator
Litigation: using the judicial system to resolve disputes
Benefits of litigation:
a clear winner and loser
uses a prescribed set of procedures
more predictable outcomes
is final
Negatives of Litigation:
waiting for court dates can do more harm
usually more expensive than mediation and arbitration
part of the public record
