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Is an ongoing commercial contract an asset to be split when dissolving a partnership?

Asked over 2 years ago - Clio, MI

Hello,

Myself and business partner of 23 years have decied to go our seperate ways. We have been involved in a S-corporation partnership 50/50 construction business and have done very well, until the mortgage meltdown. The pressures of not enough work have taken its toll. We are splitting assets (tools, equip, etc.), balance of cash, and I have agreed to let him take his clients with him, (he has the most active clients, mine were developers who have went under) with the exception of a commercial contract that began before we had decided to dissolve. It is a time and material repair contract of estimated $70,000 gross value. I feel I own 50% of it, since it was aquired before we had dissolved, he says it is his since it was generated thru his contact and is taking it. Please give me your input on this matter. Thanks, bob

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Attorney answers (2)

Michael Lee Mau

Reputation Level 10

Answered over 2 years ago. Construction / Development Lawyer in San Francisco, CA.

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The question identifies both an S-corporation and a partnership, which are two distinct legal entities. Assuming it is corporation, each individual was a fifty percent shareholder, and there were no other governing documents on the division of assets, then a contract entered into by the business should be an asset owned by the corporation and divided like all other assets.

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Robert S. Whims

Reputation Level 8

Answered over 2 years ago. Construction / Development Lawyer in Traverse City, MI.

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I am going to assume that you are incorporated, not an informal partnership. If that is correct, the contract is an asset of the corporation. You would be entitled to your pro-rata value to the corporation of the contract, but there are probably some practical considerations that need to be thought out. First, the contract may allow the other party to terminate it for any reason they desire. If your partner has a good relationship with this other party, they could orchestrate that termination and get the other party to sign a new contract with your partner's new business. You would still be entitled to your share of any outstanding payments to your company.

Second, as you know in the construction business a T & M contract can be difficult to accurately value as it relates to the bottom line value to the corporation.

You should be certain that you have complied with Michigan's licensing statutes as you go forward. For residential work you must be a licensed builder both individually (What is commonly called the Qualifying Officer) and as a corporation. I am a licensed contractor along with being an attorney. If I can be of further assistance, you are welcome to contact me. In any case, I do recommend that you contact counsel.

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