Business partner hiding things

[ukbusinessowner1]

I have recently found out that my business partner 50 / 50 is involved in another business and doing work for them while he should be working on our venture.

The business partner is a sales representative and he's always been mostly home based / on the road. Sales figures have always been mediocre like he's doing the bare minimum to satisfy things so I’ve always had a sneaky suspicion.

About 2 months ago we got new office space with an office for him as the business is growing. After a month at the office he'd only been in about 6 hours the whole time so i asked him why. He told me that his routine was getting up and working from home and then getting out to meetings and he's finding that the best way still. (The office was supposed to be somewhere he could do meetings / work from and use as a base)

His laptop broke about a month ago and I took the opportunity to add some employee productivity software to it.

Low and behold he's been working on another venture with 2 others while at home along side working on this business. Its going to be the end of the road as there have been other things in the past which have put my trust of him at all time low.

Leaves me in a tricky position because I sold my company about 6 months ago to pursue this venture 100% with him. To make it even worse he's my brother in law and I recently moved house so have a new mortgage.

 

[Paul Norman]

This is a variation on a topic that appears on these pages almost daily.

And the first question is always this.

Do you have a partnership agreement in writing? Have you set out the terms and conditions under which each of you will work and be rewarded?

You will be amongst those who now know why this is so important. Especially if the person is a relative. Or a friend. Or a 'great bloke I met at the Rotary Club'

I really hope you can talk this through and resolve it in a friendly way, and that you don't end up losing your home. It is that important though, so I would confront him immediately.

Of course, if it is a 50/50 partnership, then his view could be the one that prevails.

 

[Newchodge]

Is this a partnership or a limited company?

 

[ukbusinessowner1]

Limited company

 

[ukbusinessowner1]

This is a variation on a topic that appears on these pages almost daily.

And the first question is always this.

Do you have a partnership agreement in writing? Have you set out the terms and conditions under which each of you will work and be rewarded?

You will be amongst those who now know why this is so important. Especially if the person is a relative. Or a friend. Or a 'great bloke I met at the Rotary Club'

I really hope you can talk this through and resolve it in a friendly way, and that you don't end up losing your home. It is that important though, so I would confront him immediately.

Of course, if it is a 50/50 partnership, then his view could be the one that prevails.

Having run a business previously I knew to do this. One of the paragraphs states:

No Partner will engage in any business, venture or transaction, whether directly or indirectly,
that might be competitive with the business of the Partnership or that would be in direct
conflict of interest to the Partnership without the unanimous written consent of the remaining
Partners. Any and all businesses, ventures or transactions with any appearance of conflict of
interest must be fully disclosed to all other Partners. Failure to comply with any of the terms
of this clause will be deemed an Involuntary Withdrawal of the offending Partner and may be
treated accordingly by the remaining Partners.

 

[Newchodge]

Is the other work in conflict with your company, or just taking yoru partner's time away?

Do you have a written agreement specifying how much time you eash spend working on the business?

Presumably you are both equal shareholders and directors?

 

[ukbusinessowner1]

Is the other work in conflict with your company, or just taking yoru partner's time away?

Do you have a written agreement specifying how much time you eash spend working on the business?

Presumably you are both equal shareholders and directors?

Both.

We are both involved in an embroidery company and he has got involved in a clothing company that we had / have as a client putting their logos on items through our business...

Yes equal shares.

 

[Newchodge]

Both.

We are both involved in an embroidery company and he has got involved in a clothing company that we had / have as a client putting their logos on items through our business...

Yes equal shares.

Then you need to secure the company bank account, first, then confront him with the fact that he is in breach of his statutory diorector's duties and request that he resign and sign over all his shares, otherwise you will commence legal proceedings.

It is in your vest interests to get formal paid for legal advice about doing this.

 

[Paul Norman]

Having run a business previously I knew to do this. One of the paragraphs states:

No Partner will engage in any business, venture or transaction, whether directly or indirectly,
that might be competitive with the business of the Partnership or that would be in direct
conflict of interest to the Partnership without the unanimous written consent of the remaining
Partners. Any and all businesses, ventures or transactions with any appearance of conflict of
interest must be fully disclosed to all other Partners. Failure to comply with any of the terms
of this clause will be deemed an Involuntary Withdrawal of the offending Partner and may be
treated accordingly by the remaining Partners.

You are ahead of the game, then.

By a considerable distance.

I would begin to invoke that clause, personally. That will begin with a minuted meeting to present to your partner that this is where you feel you are.

As to the unravelling of a partnership, and how that plays out, I shall leave that to person with experience of how to do it.

I really do hope it can be resolved in a way that does not leave you massively disadvantaged.

 

[ukbusinessowner1]

You are ahead of the game, then.

By a considerable distance.

I would begin to invoke that clause, personally. That will begin with a minuted meeting to present to your partner that this is where you feel you are.

As to the unravelling of a partnership, and how that plays out, I shall leave that to person with experience of how to do it.

I really do hope it can be resolved in a way that does not leave you massively disadvantaged.

I unfortuantly don't see a good outcome from this. Its going to be very bad on a personal level and not what I wanted in the third year of what could be a successful business if it wasn't for this deceit.

 

[The Byre]

Most partnerships end that way!

 

[Gordon - Commercial Finance]

Going in to business with family seldom seems to have a happy ending!

 

[ukbusinessowner1]

Going in to business with family seldom seems to have a happy ending!

Yes can't believe how naive I have been!

 

[Mr D]

Going in to business with family seldom seems to have a happy ending!

It can be made to work.
It is added stress and has the disadvantage of family arguments spilling over into work.

 

[Gordon - Commercial Finance]

It can be made to work.
It is added stress and has the disadvantage of family arguments spilling over into work.

Yes absolutely and I have had it work in the past. The biggest disadvantage I think is looking at it from the opposite perspective - business disagreements can ruin the family relationship!

 

[Noah]

Yes absolutely and I have had it work in the past. The biggest disadvantage I think is looking at it from the opposite perspective - business disagreements can ruin the family relationship!

On the other hand, if the brother-in-law is cheating in business, he's probably screwing up the family elsewhere too - possibly literally.

As I've said before, the pattern of failing family business partnerships is not necessarily proof that all such arrangements are doomed - we don't tend to hear about the successful ones.

 

[The Byre]

There is one way and one way only to make a partnership work. Each and every party must be financially separate. If you rent a shop, you are in a partnership with the landlord. He/she provides the shop, you provide the business, the punters provide the money that drives both the business and pays for the building.

If you are building machines, one person builds the machines, the other person sells them. Assuming that they are contractually obliged to deal with one another, each gets paid according to what they have achieved.

But just splitting 50:50 and hoping for the best ain't a sensible business strategy!

 

[Gordon - Commercial Finance]

There is one way and one way only to make a partnership work. Each and every party must be financially separate. If you rent a shop, you are in a partnership with the landlord. He/she provides the shop, you provide the business, the punters provide the money that drives both the business and pays for the building.

If you are building machines, one person builds the machines, the other person sells them. Assuming that they are contractually obliged to deal with one another, each gets paid according to what they have achieved.

But just splitting 50:50 and hoping for the best ain't a sensible business strategy!

A lot of sense in that. Although I guess we see a lot of people come on here and complain that one partner is not "doing as much" as them or pulling their weight...could still be the case if one person is building machines and the other is selling them. Might take 14 hours a day to build the machines but 2 hours a week to sell them....extreme example of course...

 

[STDFR33]

There is one way and one way only to make a partnership work. Each and every party must be financially separate. If you rent a shop, you are in a partnership with the landlord. He/she provides the shop, you provide the business, the punters provide the money that drives both the business and pays for the building.

If you are building machines, one person builds the machines, the other person sells them. Assuming that they are contractually obliged to deal with one another, each gets paid according to what they have achieved.

But just splitting 50:50 and hoping for the best ain't a sensible business strategy!

It isn't a partnership though. It's a limited company.

The shareholders / directors don't buy the machine, the company does.

Each director gets paid what they have agreed and minuted.
Shareholders get paid dividends in proportion to their shareholding, regardless of what each shareholder as achieved.

 

[The Byre]

Might take 14 hours a day to build the machines but 2 hours a week to sell them....extreme example of course...

I'm in a partnership right now. She does all the work (in theory - she now employs someone) and I put up the money. She earns far more than me, but then she has put in all the effort, did all the ground work, brought in all the customers and created every inch of the business model and all its calculations. That's fine by me. She can stay in bed all day with her partner for all I care. As one says in German "The Ruble is rolling!"

It isn't a partnership though. It's a limited company.
The shareholders / directors don't buy the machine, the company does.

The structure is irrelevant! Profit is relevant!

Payment should be by how much profit is generated by that activity, not by the effort required. When I was running a news agency, journalists were paid a small basic, plus a bonus for words sold. I didn't care how many words they wrote. What we needed was not words written but words being sold! Words actually bought and paid for and printed in the magazines and newspapers of the English speaking world and beyond.

Every man and woman a profit centre!

 

[ukbusinessowner1]

I was going to address this with my business partner today but i've decided to leave it abit longer. My daughters birthday in a couple of weeks and other family gatherings that would be incredibly arquard if I opened the can of worms today.

I have a holiday in 4 weeks also which I'm thinking once i'm back it would be a idea to raise it but I just don't think I can wait that long as its driving me up the wall the more I see.

To make matters worse I bailed his father out of gambling debts about 2 years ago! Like father like son...

 

[Newchodge]

Are you sure you are not just finding reasons to procrastinate? There will always be something happening that will make it awkward.

 

[ukbusinessowner1]

Are you sure you are not just finding reasons to procrastinate? There will always be something happening that will make it awkward.

Possibly but I haven't had a holiday in quite a while (ironically because i've been working hard for the business) and my wife is pregnant so I don't want the added stress on her which it will undoubtable bring.

If it was just me thinking of me I wouldn't hesitate.

 

[Socio South West]

Are you sure you are not just finding reasons to procrastinate? There will always be something happening that will make it awkward.

This.... no time is ever going to be right in your situation, and the longer it goes on the more the can argue that you were complicit.

J.F.D.I.

 

[ukbusinessowner1]

This.... no time is ever going to be right in your situation, and the longer it goes on the more the can argue that you were complicit.

J.F.D.I.

A good friend of mine gave the exact same advice. When is ever going to be a good time to completly turn the world upside down.

 

[KAC]

Is this a partnership or a limited company?

Limited company

Having run a business previously I knew to do this. One of the paragraphs states:

No Partner will engage in any business, venture or transaction, whether directly or indirectly,
that might be competitive with the business of the Partnership or that would be in direct
conflict of interest to the Partnership without the unanimous written consent of the remaining
Partners. Any and all businesses, ventures or transactions with any appearance of conflict of
interest must be fully disclosed to all other Partners. Failure to comply with any of the terms
of this clause will be deemed an Involuntary Withdrawal of the offending Partner and may be
treated accordingly by the remaining Partners.

You are quoting a partnership agreement but you are not partners.
You say it is a limited company so you should have a shareholders' agreement which is somewhat different.
Speak to @The Resolver . His website is here

 

[ukbusinessowner1]

I decided to confront the business partner yesterday.

He was obviously taken aback that I had found out he was involved in another business.

He's very quick to think of a way of trying to play it down.

Took him a while to grasp just how serious what he has done is. Basically he said its a friend and he was helping him out. It's a hobby not a business were his words.

I don't believe any of it. And the things I can't get over are:

- kept this hidden from me
- was doing marketing for them so clearly profit incentivised
- working on the other business while he should have been working on our business.
- it's a client of ours that weve been doing work for but that would no longer be the case as he's getting money from it so he'll go direct for them rather than using our business.
- has abit of a track record of being a Del Boy type bit of a sly one.

He apologised and said he would do whatever to make things right. The withdrawal of his shares and him leaving the company really would destroy everything for him. He's never had a proper job, no qualifications as such and still lives with his parents at 27.

At the same time it would cause stress and destabilisation for me too as i have a baby due in August. A new mortgage I took out 4 months ago on a house and it would cause problems in my wife's family.

All that said I'm 80 / 20 leaning towards telling him it's finished for him.

 

[Newchodge]

He has proved you can't trust him. Is there any way that you can exert some control - working only from the office, full diary maintenance, daily reporting, payment by results etc. If that is possible it MAY be worth a trial period. He is probably more worried about his family finding out than you are.

Your big problem is the shares. Unless you have a watertight shareholders agreement, he keeps the shares whatever happens, but he may not realise that.

Congratulations on taking that step.

 

[Mr D]

A good friend of mine gave the exact same advice. When is ever going to be a good time to completly turn the world upside down.

Two minutes before the clocks go back an hour. Reversing things if you made a mistake.

 

[Mr D]

He apologised and said he would do whatever to make things right. The withdrawal of his shares and him leaving the company really would destroy everything for him. He's never had a proper job, no qualifications as such and still lives with his parents at 27.

You can buy the shares from him at a price set by him.
That gets the shares to your ownership. And removes him from some potential trouble in the future.

 

[ukbusinessowner1]

Can I take 100% ownership of the company and keep him on as a director in name only? still be able to pay dividends.

I'd then have to implement a rigid structure for him to work to, fit tracker to car etc...

 

[KAC]

You don't need to own shares in the company to be a director. You can't have dividends but you could pay him a bonus subject to PAYE

 

[ukbusinessowner1]

You don't need to own shares in the company to be a director. You can't have dividends but you could pay him a bonus subject to PAYE

It seems a sensible thing to safeguard the future if I'm going to continue working with him.

 

[KAC]

You would need advice from your accountants but you could possibly create a new class of non-voting shares that are only entitled to face value on liquidation but on which dividends could be paid.
You also need to consider his employment rights. I'm sure that you could engage @Newchodge if you wanted professional advice on that aspect