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Asked about 1 year ago - Los Angeles, CA
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- a verbal agreement was made to pay me $X/mo in exchange for running the company.
- an LLC was formed after the agreement started. I became 49% equity holder of the partnership, but it was not written into the LLC papers.The agreement was honored and paid by the company with checks signed by the majority holder for the first 2 years.
- year 3, 4 and 5, I started signing the checks. When the economy tanked and the company was not making as much money, I did not pay myself consistently, only when funds were available.
- year 6, the majority stakeholder is claiming I had no right to pay myself, nor am I owed any of the back due monies for those times when I did not pay myself in previous years.
- the majority holder is now claiming that any monies I did pay myself, I took without authority.
Let me ask you a few questions:
1) Was your compensation treated as W-2 salary or was it treated as distributions or guaranteed payments from the LLC? True partners cannot receive a salary from their own partnership, so hopefully the payments were treated as distributions or guaranteed payments.
2) Did your 49% stake in the LLC result in your receiving K-1s each year? If you actually owned a stake in the LLC, including interests in its profits and capital, then you should have been treated like a partner and issued a K-1 each year.
3) Did you record on the company's books a payable to you for years 3, 4, and 5? I assume that you were responsible for the company's bookkeeping. Hopefully you noted the accumulating monies owed somehow.
If the majority owner had been cutting checks for your employment, he's going to have a hard time maintaining that suddenly you get nothing for your work. However, there are a lot of factual issues that need to be discussed with an attorney well-versed in business matters. Luckily, there are a lot of good ones on Avvo from Los Angeles who will probably be adding their opinions. Make an appointment to see one of them.
The law does not favor unwritten contracts - the terms are so hard to prove. In fact we have, in every State, a holdover from long ago called the Statute of Frauds. Its sets forth certain kinds of agreements which must be in written form to be enforceable. The contract itself does not have to be in writing IF there is a memorandum of the terms of the contract which is signed by the person who denies the existence of the contract. I'll provide a link below to a short discussion of the statute. Be sure to have your speakers turned on.
California's Statute of Frauds, found at Cal.Civ.Code ยง1624. Contacts falling within the enforcement of the Statute of Frauds include promises to answer for the debt or duty of another (surety bonds) , contracts not to be performed within one year, (your contract is a multi-year contract) contracts to sell any interest in real property, contracts not to be performed within the lifetime of the promisor and contracts for the sale of goods for $500 or more.
You've told us the contract is not in writing, so, if you want to try to enforce it, you must find written evidence of the terms, signed by your partner who denies its existence.
You're going to have to have a lawyer on this one, an experienced contract attorney to assist you in assembling and organizing the various documents that will help you prove your case.
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