Can my former partner demand his buy-in money back after he leaves the partnership?

Asked over 1 year ago - Westminster, CA

From 2005 to 2007, I owned a few nail salons and ran my business by myself (sole proprietor). In 2008, my (former) friend said he wanted to buy into my business. He offered me $50K to buy in, and I agreed. From there we ran the business as a partnership, but we didn't have an agreement in writing. Business wasn't very profitable, but we split everything. In 2010 he kind of abruptly walked away from the business (moved away, and we didn't talk at all after that). Just last week he called and said he wanted his $50K back, or he would sue me. Can he do this? Do I have to pay it all back?

Additional information

Follow up: isn't there any chance that a court would say I sold half my business to him for $50K when I let him become a partner? And if so, didn't that money become mine? When he abandoned the partnership, the business really wasn't worth that much, so if I have to give him half what the business was worth, that might be ok.

Attorney answers (4)

  1. Michael Charles Doland

    Contributor Level 20

    12

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    Answered . An investment is not a guaranty of repayment or a right to demand repayment at a time of the investors choosing (in the absense of a written partnership apreement.

    However, a "statutory" partnership is still governed by rules. To highlight the considerations (and without an in depth inverview) is not possible, but your returning "partner" probably has the right to an accounting for 50% of the distributions since he diappeared (less some defenses you might have) and probably has a statutory right to dissolve the corporation which, might have some major tax ramifications and lease payment raminfications at the least.

    Although consunsulting a lawyer now may seem like and expense, it is more likely to save you money in the long-run. You should prepare every bit of paperwork for your meeting with the lawyer including but not limited to busienss taax returns and detailed summary of facts and dates.

    Finally, before litigation consider mediation, a non0-binding procedure which seeks to find a "win-win" as opposed to litigation, which is inherently "win-lose".

    Good luck on resolving this.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may... more
  2. Seyed Abbas Kazerounian

    Contributor Level 15

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    Answered . It is a shame that you do not have anything in writing - it is always wise to spend a little at the front end rather than a large amount at the end. But did you discuss what would happen? The real question here is, is he entitled to his $50K back or the value of half of the business. You need to sit down with a business attorney as this will take careful evaluation and not something that can be answered on a forum like this

    Kazerouni Law Group, APC is a law firm concentrating its efforts in the area of consumer law, the Fair Debt... more
  3. Dana Howard Shultz

    Contributor Level 19

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    Answered . You have a situation that is both legally and factually complicated. Attorney Doland provided an excellent overview of the major issues to be addressed.

    One thing that I think is reasonably clear is that your partner is not entitled to return of his $50K investment. Unfortunately, what he *is* entitled to will require quite a few accountant and lawyer hours to determine - probably an expense that is not justified given the value of the business. You both will be better off if you can find a quick, inexpensive way to settle this matter.

    This information does not constitute legal advice and does not establish an attorney-client relationship.
  4. William Martin Burbank

    Pro

    Contributor Level 12

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    Answered . One thing to remember is that people often threaten a law suit. They think that they are going to be able to get an attorney to represent them on a contingency agreement. The truth is most lawyers don't work on contingency, especially in a case like this one. Your "partner" is going to have to come up with a significant sum in order to bring a law suit. In our office our litigation attorneys usually require an initial retainer of $25,000. So you have to ask yourself. Is it really likely that he would have the means and the willingness to risk $25,000 to get back something that is in all likelihood significantly less than the $50,000 he invested? I think it would be wise for you to spend a few hundred to talk to an attorney, but i probably would not lose a lot of sleep over this.

    Every situation is different, it is important to discuss your legal issue with a knowledgeable attorney in your... more

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