Time To Clean Out Santa's Mail Bag [Part One]
Cliff Ennico
www.creators.com
At year-end, I always clean out my e-mail #147;in box#148;, and there#146;s always a few e-mails from readers I didn#146;t get a chance to address during the year. Some people dream of sugar plums, others just want their two front teeth, but these folks want answers. So here goes . . .
#147;I#146;m starting a auto repair shop with two friends. We#146;ve agreed to share profits equally (one-third each), but we also agree that I will run the business. How can we do that without my having 51% of the ownership?#148;
Simple. You form a #147;manager managed#148; limited liability company (LLC). You would be the sole #147;manager#148;, with authority to run the business and make the day to day decisions. The three of you would be the #147;members#148;, or owners, and would split the ownership one-third each. Be sure your LLC operating agreement (similar to a partnership agreement) contains the following provisions:
you cannot be removed as Manager unless all 3 Members agree (including you);
each year the three of you will meet to determine how much you can take out of the LLC checking out as compensation for your management services #150; if you can#146;t agree by March 31 of any calendar year, your compensation will remain the same as it was in the previous year; and
any decision requiring the vote of the Members (such as mergers, asset sales or bankruptcy) must be made by 100% vote.
#147;My friend is in a partnership with two other people for a dance studio. My friend owns 60% of the partnership. In the past few months, her other two partners have forced her out of the business #150; first they changed the locks on the doors, then they refused to schedule students for her. Is there anything she can do to keep this business from being stolen out from under her?#148;
Oh, the joy of partnerships! It sounds like your friend has been a #147;doormat#148;, letting the other partners walk all over her, as is common in these situations. With 60% ownership, though, she is someone who #147;must be obeyed#148;, whether the other partners like it or not. Let#146;s just hope there#146;s something in writing somewhere saying she does indeed own 60% of the partnership.
If there is, then your friend should have a lawyer write a letter to the other two partners (send it by registered or certified mail), which will read something like this. #147;As we near the end of the calendar year, I need to know how much I will be making from our partnership. As a 60% partner, I am legally entitled to 60% of the profits from this business. As soon as you receive this letter, please render an accounting of the revenue, expenses and profits of this business since January 1, 2005, and be prepared to write me a check for 60% of the profits on December 31. If any of you have taken out more than your percentage share of the profits (40% for the two partners combined) in compensation, the excess must be promptly returned to the partnership checking account to avoid legal action.#148; That ought to get their attention; if they don#146;t respond, then your friend should call a #147;partners#146; meeting#148; to discuss the conduct of the business.
At this meeting, your friend should be prepared to offer to sell her 60% share in the business to the two other partners. They obviously want to move forward without your friend, and that#146;s okay as long as they pay your friend something for her contribution to the business thus far.
#147;I#146;m thinking of starting a business with a software programmer. Are there any special rules about doing business with programmers?#148;
Not really #150; partnerships are partnerships no matter who you have them with. Still, I would be wary about giving a programmer ownership of a company unless he has developed the software product you are selling, and is prepared to work 24/7 to keep that product up to date. If you own the software, and he#146;s just providing labor, don#146;t make him a partner until he proves to you just how indispensable he is to the product#146;s success.
More next week . . .
Cliff Ennico (
cennico@legalcareer.com
) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. His latest book is #145;Small Business Survival Guide#146; (Adams Media, $12.95). This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at
www.creators.com
. COPYRIGHT 2005 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.
