partnerships

50% of marriages end in divorce, but that is a better track record than business partnerships. 70% of business partnerships dissolve for reasons other than the retirement or death of one of the partners. Some business partners knew each other as friends before they incorporated a business together, but even that is not a perfect safeguard against deception. However, at least you know your partner well enough to know when he is not acting like his usual self. When someone you have not known for a long time proposes a business partnership, it is best to do your due diligence before legally tying your destiny to theirs. If your business partner has started to show their true colors, and their true colors are not pretty, a San Diego business partnership dispute lawyer can help you get out of the relationship and save yourself.

The 800Xchange Story: A Cautionary Tale

Chris Smith and Edward Shin met as co-workers for a lead generation company in Southern California. They later founded 800Xchange, a lead generation company targeting the debt consolidation industry. While Shin presented a wholesome image, he had a history of financial crime and a gambling addiction. In 2010, Shin diverted a large sum from the company’s accounts and used it to pay court-ordered restitution for a prior criminal conviction of his. Smith confronted Shin, who retaliated by murdering Smith, 33. Shin then led Smith’s family to believe that Smith was sailing around the world; he impersonated Smith in emails to Smith’s family. He also forged Smith’s signature on documents dissolving the company. Shin is currently serving a life sentence for Smith’s murder. Clearly, this is a worst-case scenario, but a dishonest business partner can cause you serious trouble.

How to Build a Business Partnership on a Foundation of Trust

If you were hiring an employee, you likely would conduct a criminal background check. It also makes sense to do one for a prospective business partner. You should ask to see your prospective partner’s recent income tax returns and run a credit score. It is also a good idea to require both partners’ signatures for transactions involving large amounts of money and for any significant business contracts and purchases.

Shady Business Partner Red Flags

The following behaviors should raise suspicion about dishonest behavior by your business partner:

• Your partner refuses to talk about some of their past projects
• Your partner claims to have been involved in a certain business project, but a Google search shows no record of this (even businesses that have been closed for a while often turn up on Google searches)
• Your partner resists your efforts to be organized about record keeping
• Money that your company has earned is unaccounted for

The best time to talk to a lawyer is before things get bad, and if things are already bad, the time to contact a lawyer is now.

Contact Foldenauer Law Group About Disentangling Yourself from a Bad Business Partnership

A business partner dispute lawyer can help you avoid heavy financial losses if you recently found out that your partner is bad news. Contact Foldenauer Law Group, APLC in San Diego, California to discuss your case.

Litigation, where parties in a dispute present their respective sides of the story in front of a judge, is typically stressful and expensive. Therefore, many business partnership contracts include arbitration clauses that require the parties to resolve their disputes outside of court in the presence of an arbitrator. On the one hand, arbitration can allow the parties to resolve their disagreements relatively quickly and inexpensively. On the other hand, it is harder to ensure the impartiality of arbitrators than of judges, and the party that insisted on arbitration from the beginning is usually at a major advantage. Whether to follow an arbitration agreement or proceed to litigation is not always a straightforward matter. If you are involved in a dispute with your business partner and are wondering whether arbitration is a satisfactory path for resolution, contact a San Diego business partnership dispute lawyer.

The Dentons Arbitration Dispute

The complexities of whether to arbitrate or litigate can be seen in the following example. Dentons is the fifth largest law firm in the world, with offices in several U.S. cities and in 76 other countries. It is involved in an ongoing dispute in which two of its partners have accused each other of shady or fraudulent activity. The problems started when Jinshu John Zhang, a Dentons partner, won a $35 million contingency fee. Zhang claims that he was within his rights as an agent of Dentons to have part of the fee paid directly to him, but Dentons CEO Mike McNamara claimed that Zhang’s actions constituted self-dealing. Zhang, meanwhile, alleged that McNamara had forged a letter from a client, ordering a payment sent directly to Dentons. In the spring of 2021, Zhang emailed the U.S. board, describing McNamara as a “massive fraud” and calling for his removal as CEO. On May 5, Dentons terminated Zhang’s employment, and on July 2, it removed McNamara from his position. Zhang claims that Dentons wrongfully terminated his agreement in retaliation after he reported McNamara’s alleged wrongdoing to the board. Dentons claims that Zhang’s allegations against McNamara are “false and slanderous.”

Zhang filed a lawsuit against Dentons in California, pursuant to the California Labor Code.  Meanwhile, the parties also engaged in arbitration in New York, and the California courts paused the case, pursuant to the California Code of Civil Procedure. In August 2021, the California court ruled to honor the New York arbitration agreement. Now Zhang must withdraw his lawsuit from the California court and pay $30,000 in fees.

The moral of the story is that the question of arbitration versus litigation is not a simple matter. A business law attorney can help you figure out which California laws apply to your case and can help you proceed appropriately with arbitration, litigation, or both.

Contact Foldenauer Law Group About Complex Business Partner Disputes

A business dispute lawyer can help you if you have tried to resolve your dispute with your business partner through arbitration, but doing so only made things uglier. Contact Foldenauer Law Group, APLC in San Diego, California to discuss your case.

Few things are more fun than brainstorming with a like-minded friend about ideas that can change the world. At first, it seems like implementing the ideas and sharing your brilliant spark with the world could not be more fun, but  eventually you will have to face lots of harsh realities.  How many people have married their soulmates only to find their marriages plagued by conflict about money? The same can happen when friends start a business together; you become financial partners, and having similar ideas about your company does not automatically translate into having similar ideas about money. The following are three common sources of conflict between startup co-founders. A San Diego business partnership dispute lawyer can help you resolve them.

Dividing the Workload and the Profits

When the project is fun and aspirational, no one thinks about who puts in how much work because the work is its own reward. Once your idea becomes a business venture, you should put in writing what each partner’s responsibilities are and what share of the profits each person will receive, if and when the company becomes profitable. You should also formalize decisions about salaries for the phase when your startup is operating with modest funds. Skipping over these basics is a recipe for resentment if one co-founder gets to spend his day enthusing on social media about the product and sweet-talking influencers while the other spends their days schlepping to the post office to ship orders and responding to emails with customer complaints.

When and How to Go Big

Nothing sows discord among friends like the promise of wealth. The fun of owning a small business is at risk when the officials in suits (or, perhaps in this generation, in cargo shorts) show up and start talking about huge amounts of money. Once you start getting offers from big time investors, you should talk to a lawyer about formalizing an agreement with them, so that all the co-founders can be confident that they are getting a fair deal.

When and How to Get Out of the Game

One of the most conflict-prone aspects of operating a startup is when one of the partners decides to leave the business, or when the other partners want to force them out. Sometimes the partner who is leaving the day-to-day operations wants to keep some ownership in the business, which could become much more valuable if the company goes big later on. For these reasons, your initial business organizing documents should spell out in writing how to handle buyouts, transfers of ownership, and dissolution of the company. There is even more room for things to get ugly if one partner accuses another of mismanagement of the company’s finances.

Contact Foldenauer Law Group About Startup Partner Disputes

A business partner dispute lawyer can help you prevent and resolve disputes among the partners in a startup at any phase in the company’s life cycle. Contact Foldenauer Law Group, APLC in San Diego, California to discuss your case.