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Redwarrior's moral dilemma, esp. legal info

redwarrior

redwarrior

macrumors 603
Original poster
Apr 7, 2008
5,573
4
in the Dawg house
Well, it's officially happened. Our business partner and Vice-President of our corporation has left and gone to work for the competition. Now, we're trying to figure out what to do, and I would appreciate advice, opinions, comments from everyone.

Please, no one tell me to vandalize the guy's house or anything, k?:rolleyes: Well, I might enjoy that so, on second thought, let it rip and enjoy yourself.:p

Details:
We have a modular/manufactured homes company that has been in business for a couple of years. Last year we did very well, but the housing and economic down-turn has affected us. The business has not been making enough money to pay salaries for the last 6 months. But, we only have 4 "employees," President, Vice-President, Secretary, and Treasurer, which are held by my husband, our partner, our partner's wife, and me, respectively.

We are leveraged to the hilt, owing about a quarter of a million. Our house and our partner's house have second mortgages on them as well as our model/office that we built.

We are still in business and have a couple of prospects. If things go through with these prospective customers we will be able to keep our head above water and keep the company. We want to ditch our partner and keep the company ourselves. If business picks up we are even willing to cancel his debt and cut him loose. But right now the debt is there, payments must be made, and his name is on the credit line of $200,000 that is maxed out and needs to be renewed.

His going to the competition to work selling houses for them is not good for us, of course. But I have not even been able to wrap my brain around what this really means to us.

I am going to write up meeting minutes declaring what has happened, that he has made the decision to desert the company. I am also going to write a letter to his wife, because I doubt that she has a clue what this means to her as a business partner. My husband will be contacting an attorney to discuss our options.

Thoughts, comments, legal advice, opinions, all are welcome. I'm a little in shock right now and need to gain some perspective.
 
leekohler said:
Whoa- that stinks. I'm not sure what to tell you, red.
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Yeah, I guess it doesn't happen to just the big companies. Times get tough and you find out who your friends are, huh?

I'll also add, that bankruptcy is not out of the question. Our family is kinda in survival mode right now. We just want to do the right thing, and leaving bad debt behind doesn't seem right to us. We have always paid our bills. Then again, the system is in place to help companies like ours too. I'm on the fence here. I'm sure I'll get clarity as we walk through this, but right now I feel like I'm walking through a snake pit with a blind fold on.:eek:
 
I must say that I don't really understand what is happening. Your partner's wife is also a partner in the company, no? It seems like there are 4 partners in this business, and one is now working for the competition. Since the other 2 partners are married, and one now works for the competition, isn't there a significant conflict of interest? I mean, if he holds stake in your company, surely he's better off sabatoging the other company than ruining a business he actually owns. :confused: Otherwise, he's on the hook for a lot of money. His wife's debt is his debt, after all.

Secondly, they wouldn't even be able to discuss this sort of thing together, since he'll have insider info into what deals you have, what your plans are, etc. If he's out of the business, she should be as well.

I'm not a business person, so perhaps that's why I'm confused, while the others who have posted so far are not. :eek:


Anyway, time for you and your husband to pray a little bit harder. The economy is bound to turn around soon, although I don't know if consumer confidence in the economy is as quick to catch up.
 
Unless the partner signed a Non Disclosure Agreement, it will probably be difficult. In many states, though, a non-compete/non-disclosure agreement is difficult to enforce. The only way you can really go after someone is if you can prove they are revealing your business operations to competitors and/or going directly after your customers.

Of course, he is still on the hook for any debt that has his name on it, but he could still make life miserable for you. If he stops paying on debt that has the company name on it, the creditors will go to the company (you) to collect, simply because the company name is on the debt. If he declares personal bankruptcy, things could get even messier.

The bottom line is that you are headed toward a messy divorce with this partner. You need serious legal help on this one. Things like this make me think of a quote Dave Ramsey uses a lot: The only ship that won't sail is a partnership. Ouch.
 
Abstract, exactly my thoughts. I don't understand his decision or what will happen as a result. I do understand that he needs an income, and I know that it must be hard for him. But you are right, he is playing with fire. I'm just concerned that we will get burned in the process. (Yes, I'm confused too.) And, I'm baffled that the other company would hire him. They have also employed my husband in the past and know of our business. They are a large corporation, and I'm sure they have a conflict of interest policy that is being violated here.

About the guy's wife... she recently cheated on him. (Adding fuel to the proverbial fire.) They are trying to work it out. But, she also owns her own styling salon and is paying the bills, so my husband thinks that he is keeping her there only for that reason.

Yeah, effed up alright. We are praying, and I have an amazing amount of peace through all of this. I know it will work out, and I won't really know how until it does.

I want to be as informed as possible, which is why I posted. You guys (and girls:rolleyes:) always help me to see and think of things that otherwise I would not.

Thanks for the well wishes too. I know they are sincere. :)
 
I talked with my husband more about this. I'm going to have to go back and type up minutes for everything that the company has done, something I should've done all along. It's not a monumental task, but it is more than I need right now.:mad:

Also, said traitor has very few bills on his own. He has his house and a few very small credit card bills. His only debt is the company, and we don't know what we will decide to do about that yet. He can't declare bankruptcy without us, and vice versa, I'm assuming. Now, up until this point, my husband and I have loaned our company about $60,000. Traitor hasn't loaned any.
 
Red, I'm sorry that you and your family have to go through this. I work for a floorplan finance company, and the sooner you and your husband can take care of this the better, Once the finance company finds out, they may want to pull their inventory.
 
Ya think?:p My husband is a loan officer, and has secured financing on literally hundreds of homes. We have worked with floorplan companies, but only a little; manufactured and modular have been going through some customer and banking perception "shifts," if you will, but awareness of the product hasn't arrived yet. In fact, until just last year, one of our leading manufacturers had their own floorplan company.

At this point we don't have any floorplanning at all, and it's not for a lack of trying. We have a mortgage on our model for a measly $60K, but it's the line of credit that has us worried. Our house and Traitor's house both have a second on them. We're up to $200K on that line and it's up, needs to be renewed. Our banker doesn't know about all of this yet. But we're going to be up front with him. What can he do? Ask us to pay it? That's ***** hilarious.:p
 
I too am a bit lost, but did the defector go and work for another modular home company? I would say having a good attorney is the best thing you can do at this point.
 
Yep, that's exactly what he did. I'm still floored. He's the Vice-President of our company! I guess we'll be talking to our attorney tomorrow. We have to change the locks on the Model/Office doors, and take all the lawn equipment and trailer to our house, which is legal cause that's our corporate office.

Am I correct in assuming that Traitor is now a "hostile partner?" What is the correct term? Other than *******.:rolleyes:
 
redwarrior said:
Ya think?:p My husband is a loan officer, and has secured financing on literally hundreds of homes. We have worked with floorplan companies, but only a little; manufactured and modular have been going through some customer and banking perception "shifts," if you will, but awareness of the product hasn't arrived yet. In fact, until just last year, one of our leading manufacturers had their own floorplan company.

At this point we don't have any floorplanning at all, and it's not for a lack of trying. We have a mortgage on our model for a measly $60K, but it's the line of credit that has us worried. Our house and Traitor's house both have a second on them. We're up to $200K on that line and it's up, needs to be renewed. Our banker doesn't know about all of this yet. But we're going to be up front with him. What can he do? Ask us to pay it? That's ***** hilarious.:p
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No floorplan company. So is your inventory financed through a local bank, or through the manufacturer? Is there any way that they can help?
 
We don't have any inventory. We tried, but in the end it was really better that we didn't. The model is the showplace and we've pushed modular, not manufactured. Once the capital was there, we were going to pursue inventory.

Yes, the local banks are personal friends. But this is getting a bit risky for them at this point. They know that we are trying, but we are wondering how much we can do, and I'm sure they are too.

We did have three prospects this week though. If only one comes through, we'll live to fight another day. We're hopeful. We have found out that Traitor was sabotaging the business by not returning phone calls, and other lazy crap like that. With us on damage control, we are trying to remain optimistic about our company's fate.:)

It's good to know what you do, pivo6, I may have some questions for you along the way.
 
While you may say he personally hasn't loaned the company any money.

If he has taken out a 2nd and forgone salary to keep the company going, that is sticking money in.

Also if he has personally guaranteed the company loans that can really add up if the company dies.

While you may call him a traitor, if the company goes belly up, and it sounds like you are personally leverage to the hilt... won't he be surprised.

In the event the company goes south, his efforts at survival will make him the juicy target and both he and his wife could lose everything including the salon.

Those jointly and severally liable clauses make the one with the most cash the biggest loser.
 
Sun Baked said:
While you may say he personally hasn't loaned the company any money.

If he has taken out a 2nd and forgone salary to keep the company going, that is sticking money in.

Also if he has personally guaranteed the company loans that can really add up if the company dies.

While you may call him a traitor, if the company goes belly up, and it sounds like you are personally leverage to the hilt... won't he be surprised.

In the event the company goes south, his efforts at survival will make him the juicy target and both he and his wife could lose everything including the salon.

Those jointly and severally liable clauses make the one with the most cash the biggest loser.
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To be technical and accurate - we have never paid salaries. The company has no employees, just stock-holders. We have paid dividends, and paid him dividends when we didn't have them to pay, because we wanted to help him out. We are a young company and not yet in the black.

In my mind, when someone takes ownership of something, creates alliances and commitments, and then takes actions to sabotage it, they are a traitor.

His losses would not be greater than our losses, they would be about the same or less. We had more collateral so we put up more. We have loaned the company money on our personal lines of credit, he hasn't.

I think the reason why it's so easy for him to walk away, is because he has so much less invested in the company than we do. He doesn't see it as his.

Edit: I sincerely hope he doesn't loose anything. I just wish he would do the right thing, although right now, understandably, that's hard to figure out.
 
you said he signed on the credit line, for new companies these tend to be backed with personal guarantees.

Can you pay the personal guarantee on the credit line in full today?

The jointly and severally liable portion (likely it is in there) means that if you can only pay $10-25k they turn around and go after him for everything else.

Especially since his wife looks like a ripe target with a profitable business.

---

Personally, if your company went belly up -- I'd go after him.
 
Sun Baked said:
you said he signed on the credit line, for new companies these tend to be backed with personal guarantees.

Can you pay the personal guarantee on the credit line in full today?

The jointly and severally liable portion (likely it is in there) means that if you can only pay $10-25k they turn around and go after him for everything else.

Especially since his wife looks like a ripe target with a profitable business.

---

Personally, if your company went belly up -- I'd go after him.
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I appreciate your views on this. While I will do my best to keep from affecting his wife's business (she's the silent partner in all of this), I think that if what you say is true, he will have good reason to at least not do any more harm to the business. Thank you for your insight, I had not thought about it that way.

Another interesting tidbit I neglected to mention - He made the comment to my husband that he went to work at this particular lot because they are the only place that doesn't do drug testing. He's been dealing drugs around town, small town people talk, and we're concerned that he may end up in jail.

I swear, this is not the same man we started a corporation with 2 years ago.:eek:
 
He made the comment to my husband that he went to work at this particular lot because they are the only place that doesn't do drug testing
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Tells you right there you're dealing with a real "quality" individual. Good luck with the lawyer...you have a lot on your plate.
 
redwarrior said:
Another interesting tidbit I neglected to mention - He made the comment to my husband that he went to work at this particular lot because they are the only place that doesn't do drug testing. He's been dealing drugs around town, small town people talk, and we're concerned that he may end up in jail.

I swear, this is not the same man we started a corporation with 2 years ago.:eek:
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If this is true Red then I would say parting ways with him now is really a good thing in the big picture. If you can make the separation work without losing the company then you can rely on people you completely trust (yourself and your husband) to continue to give 110% to make the business work. If he changed his mind and came back now, while it would solve the present crisis, you would always be wondering in the back of your mind if this other problem is going to blow up at any time. Doing business with people that make self harming and detrimental choices like drugs or gambling is scary. You never know if they will put the needs of the company and others ahead of their personal needs/desires. Just to be cautious you may want to go back and have a good look at your financial records as well. Keep your head up, I'm glad to hear you have some peace in the midst of this storm. I'll keep you in my prayers.
 
mscriv said:
If this is true Red then I would say parting ways with him now is really a good thing in the big picture. If you can make the separation work without losing the company then you can rely on people you completely trust (yourself and your husband) to continue to give 110% to make the business work. If he changed his mind and came back now, while it would solve the present crisis, you would always be wondering in the back of your mind if this other problem is going to blow up at any time. Doing business with people that make self harming and detrimental choices like drugs or gambling is scary. You never know if they will put the needs of the company and others ahead of their personal needs/desires. Just to be cautious you may want to go back and have a good look at your financial records as well. Keep your head up, I'm glad to hear you have some peace in the midst of this storm. I'll keep you in my prayers.
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Thank you for your prayers. I appreciate that you would do that and you don't even know me.:) I really knew in my heart that we should not be in a partnership with this man from the beginning. But we needed his house for collateral, he was willing, and we thought, manageable, so I didn't push the issue. I see now that we should've kept our faith in God instead of the system.:eek: You live and learn right?

I have kept a very tight reign on the finances, so we are good there. I controlled every penny. He does have access to the checking account, but we are keeping money out of it, so he can't take anything. I just finished our taxes for 2008 and everything is present and accounted for. I honestly don't think he meant to do anything to hurt the company, he simply doesn't have a clue. It's about the money and for some reason he thinks he can walk away.:confused:
 
Have a meeting of the board and have his signature removed from the checking account.

There should be something you can use in the LLC forms book.
 
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