About David K. Staub Expertise I am a business and tax attorney and have spent more than 30 years assisting people with contracts in a wide variety of business situations. I can answer questions about basic contract issues. My experience includes almost all common contracts including employment agreements, contracts for the purchase and sale of a business, shareholder agreements, partnership agreements, LLC operating agreements, leases, software development agreements, distribution agreements, franchise agreements, joint venture agreements and software license agreements, to name a few. I can also direct people to sources for answers to specific legal questions which cannot be answered in a forum of this nature.
Experience
Experience in the area I have been an Illinois business attorney for almost 30 years. I have an extensive practice in the mergers and acquisitions area and have been involved in the tax and legal issues on hundreds of business transactions.
Organizations Illinois State Bar Association;
Chicago Bar Association (former Chairman of the Corporation & Business Law Committee and former Chairman of the Mergers and Acquisitions Subcommittee; former Executive Committee member, Federal Tax Committee and Chairman of subcommittee on general tax issues); Glenkirk Foundation (Trustee; Vice-Chairman/Strategic Planning); Association for Corporate Growth, Chicago Chapter; Midwest Entrepreneur Forum; Midwest Association of Alpha Delta Phi - President
Publications Commerce Magazine; YLS Journal; ISBA Section of Taxation Newsletter
Education/Credentials Harvard Law School, J.D., 1977; University of Illinois, B.S. in Accounting, with highest honors, 1974
Disclaimer Responses are intended to be informational only. No response is intended to constitute legal advice or create an attorney-client relationship. Online advice is not a substitute for consultation with an attorney.
Question I am in a partnership with 2 other partners(50%,25%,25%). There is currently only a verbal partnership agreement in place. The 50% partner has invested all of his time and effort getting the business going, but any financial investments and start up costs have been made and absorbed by the company earnings. Both partners have been compensated through commission and partner share, but i have yet to receive any compensation. I was to get paid once i left my other FT job (even though i put FT effort into our company), but have decided not to leave. Now, for a handful of reasons I want to leave the company. My question is: how do i go about getting out of the partnership and what should i expect as far as fair compensation?
Answer Yours is unfortunately a very typical set of circumstances in start-up companies. Two or more people get an idea and bring it to a certain level, but for a variety of reasons, the parties interests diverge.
If there is no agreement on how to handle the situation, the answer is often difficult to find. First, you say that it is a partnership. The answers can be very different if the so-called partnership is really a corporation or a limited liability company. Many small business owners use the term "partnership" loosely for any business that has more than one owner, but there are big differences between the entities that affect the answer to your question.
State laws differ as to how partnership income is distributed. If you agreed that the other partners were to be compensated and you were not, there may be no retroactive adjustment at all. Assuming that the payment was intended to be a temporary condition (essentially an advance) then you need to look to your state law to see if partnership distributions, in the absence of an agreement to the contrary, are to be divided equally among the partners or made in proportion to the interests in the capital.
Since you indicate that the percentages are 50/25/25, I'll assume that there is an agreement that is how the profits are divided. Unless it was agreed otherwise, all amounts should be divided in that proportion. If you received nothing, you should receive a "catch up" distribution. Of course, they may argue that the verbal agreement was different, and the agreement, verbal or not, should control.
As for getting out, that is an even tougher question. Typically, the only right you would have is to dissolve the partnership. You don't have the right to force your partners to buy you out. If they want to form a new partnership, they are free to do so, though they cannot simply take the partnership assets. If there are any assets of value (including intangible assets such as trade names, trade marks, customer lists, etc...), they must buy your share of the assets or not use them.
I hope this gives you some guidance, but you'll need to talk to a lawyer in your state to get a better read on your facts and how your state law applies.
