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Old 11th August 2010, 04:08 AM   #1
grunt482
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Exclamation Business In Ruins - Need Advice!!!

I have been in the t-shirt business for the past two years. In the course of those two years, I've lost one partner and gained three partners. We are currently part owners with me having the biggest % in the company at 50%. The other three partners own: PARTNER 1 - 30% (has invested $5,500) PARTNER 2 - 10% (has invested $1,500 but was suppose to put in $7,500), and PARTNER 3 - 10% (has invested $10000 but was suppose to put in $7,500).

The business has not been written up as LLC or an official company. We do have a rough draft just sitting there, but have not signed anything because I am afriad it could bite me in the rear. It's pretty much a verbal agreement, but we do have a tax I D #, bank accounts for the business, merchant account, and a website for our online store. But the majority of the stuff is under my name like credit cards for the buisness and accounts from the vendors.

As far as duties or titles. I am the founder and managing member. My partners were given certain duties to take care for the company along with selling. But were not able to handle the duties, so now I'm stuck doing all the duties required to run the company, which takes up most of my free time. Now my partners just concentrate on sales. Currently we've hit a pitfall due to no or minimal sales from my partners. I usually average about $1500 to $2000 in sales. My partners are averaging below $200. This has not helped out our current situation (Right now we are in debt about $12000). We owe about $8000 to American Express and the rest to vendors. As of today my bank account is negative $634.00 and the overdraft charges are going to start to pileing up. All of the sales that are made go back into the company to order more product. The company has not been making any profit for the past 8 months.

With all this said, what would be my best option to do with this company? File for bankruptcy and cut my losses? Also, since everything is under my name it's only going to affect my credit. I told my partners that if I were to close shop, that I would take care of paying the remaining debt to Am Express and vendors by continuing to sell product as I can. What piss me off was that no one bother to say they would help me in any way. Furthermore, My partners don't want to close shop, but I told them it's impossible to continue growing or keep the company open when there is no money coming in and no sales are being made. Plus the lack of contributions that were not made by my partners as they promised (They stated they cant make any contributions anytime soon). Which is part of the big reason we are in a bind. I hate having to close shop, but my partners don't see that all the late or non payments is affecting my credit already.

Partner 1 emailed me and told me he would like to get bought out and sell his shares. He stated he just wanted to get the money back that he invested into the company. And if his shares are sold for more than what he invested. The difference would go to the company to help it out. I stated to him, that I doubted anyone would want to invest into a company that is in ruins and in big time debt. Futhermore, bringing more peolple would just complicate things in my opinion. Because what if the company continues to struggle and then that investor wants his money back too.

Honestly, my partners are hurting me more than the are acutally helping me with the company. If I had the money, I would buy him out. But being that the company is not making any money or worth any value at this point. I feel that him wanting to get bought out for his initial investment is not fair. And just an easy way out of this mess. I myself have invested way more money (over $20,000), and time than anyone else involved. In that case, I would like to get bought out. But I know that would not suit them well. Plus I am the one who runs the company form A to Z. So who would do all the work required to run the company?

All in all, I just want to avoid lawsuits from my partners and clean up this mess on my own. It has been very stressfull having to be on top of my partners. Always having to make sure they get things done as they were put on in the meetings. Which 99% of the time it doesn't get done. This only leaves me scratching my head and wondering why the hell they don't put more effort into something they invested into. start from scratch by myself. I've tried to understand why they are not selling. But it just doesn't make sense to me why I'm able to sell and they are not. Whenever I bring it to them, all I get is excuses. They tell me they been trying many different approaches to make sales or that they are waiting for new product to come in to spark up some sales. I stated to them that there is no way we can order new product if no money is coming in. And the little money that is coming in is going to the people we owe. I stressed it out to them that we have over $20,000 in inventory just sitting there at my house. Which we need to sell.

Now if I close shop and file for bankruptcy and start the business again on my own under a different, but similar name. Can they sue me at all?

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Old 11th August 2010, 11:04 AM   #2
sequoia payroll
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This is not a good situation. Here is the deal...

Since there isn't a formal corporation, you business is a sole proprietorship under your name. Meaning, you are holding the bag on this business. If you file for bankruptcy, this will kill your personal credit. When the company goes under this will not affect your "partners" in anyway, but will make it very difficult for you to start a new business.

Since there is no differentiation between you and this business, these partners can sue you to regain their funds.

There are no "buy outs". As much as you want to treat this like a corp, it just isn't one. Basically, your partners loaned you money for a business venture.

This could really turn into an ugly mess for you in particular. If I were in your position, I would consult with a lawyer to see what the next move is. If it is possible to form a corp. then that would be the best option. theoretically, this would provide some protection to you personally. Since the money has already been passed he will be able to tell you if forming a corp after the fact will work or not...

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Old 11th August 2010, 03:55 PM   #3
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Thank you so you would consider signing a corporation for protection?

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Old 11th August 2010, 04:07 PM   #4
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I wouldn't do that necessarily. Seems to me their "loan/investment" in the business = inventory at your house which is for them to figure out what to do with. Sorry to be short in my response, don't take it the wrong way - but I feel for you after reading your situation.

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Old 11th August 2010, 04:14 PM   #5
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Okay. So would be better just to close shop without filing for bankruptcy? Could this come back and haunt me if my partners would want to sue me? Or what if I decide later to start the company again on my own?

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Old 11th August 2010, 07:45 PM   #6
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Originally Posted by grunt482 View Post
Okay. So would be better just to close shop without filing for bankruptcy? Could this come back and haunt me if my partners would want to sue me? Or what if I decide later to start the company again on my own?
Here is the issue. There is no protection between you and the business. This is why sole proprietorships are so risky. If the business goes under, they creditors can take you for all that you have to recoup the money you owe. At this point, you are exposed to lawsuit. They loaned you money, and you have to "make good" on your end. Even if you close shop, they can suit YOU if they so choose.

Filing for bankruptcy is a last ditch effort. Even if you file, they could put a lien against any further money you make, and on top of that it will kill your credit. The mafia would not loan you money for a new business if you filed bankruptcy.

It may be worth liquidating business assets (shirts, printers, etc.) to try and pay them off. You might also consider a new business model, and a revamp to try and salvage the business. IF you go this route, get incorporated. Honestly, there may be more options out there, but I don't know. A few hundred bucks to a lawyer for advice may save you thousands down the line.

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Old 11th August 2010, 07:50 PM   #7
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I wouldn't do that necessarily. Seems to me their "loan/investment" in the business = inventory at your house which is for them to figure out what to do with. Sorry to be short in my response, don't take it the wrong way - but I feel for you after reading your situation.
This might work since no paperwork was signed. Hand over the inventory, and tell them good bye. This would not help your credit any, and you would still have the debt of the business. However, if you went this route, they would probably sue you for the money loaned. Which again is a great reason to GET AN ATTORNEY!

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Old 11th August 2010, 10:15 PM   #8
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Thank you for your responses and advice.

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Old 12th August 2010, 02:43 PM   #9
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Good advice & feedback.

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Old 12th August 2010, 07:31 PM   #10
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Seems to me, a couple thoughts ...

1) Can you get back out front selling in the trenches to get revenue flowing again. I think it would be easier to get these folks to work the production side, if you have had success selling and that is an issue on there end.

2) Work on building the business without them for now, if they can't help on the back end with production. Get things selling on your own, and make them yourself if you have to.

3) Pay them back the exact amount, and discuss with them if they expect any interest back on their loan in the business. Tell em thank you and you wish it had worked out better

4) After you have paid them every penny and have things in good shape, formally structure your business as you as the owner based on what make sense from a tax and protection standpoint.

I'm far from a lawyer, so get advice if you need it. I'm just giving you my straight up business advice, as everyone doesn't sue and based on your situation I think it is silly to go the bankrupt route ... if you have the ability to get out there and sell averaging 1500-2000. Based on that you can work out of this situation with flying colors in a year, verus the longer term ramifications of bankruptcy. Just get busy, build your business and get these things straightened out. consider it a lesson learned, but I think your situation is solvable with some determination and elbow grease based on your past record.

Thanks for joining in with us at the forum. Keep us posted how it goes. Welcome aboard

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