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Carborendum

Getting Out of a Business Partnership

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So, there is this handyman that I came to know several years ago.  He's done a lot of work for me. And he's become a friend.

We were first introduced because he found my name and contact info on a particular list of engineers.  He called me up and asked if I was versed in a particular type of design.  I was.  So, we've been discussing his idea for a new product for years. 

We're finally at the stage that we're about to put together the first prototype.  He mentioned that he was low enough on cash that he had to go slowly.  I told him that I thought we were 50/50 partners in this.  We had said that early on.  We had repeated it several times over the past few years.  So, I offered to put up 50% of the money for the materials needed for the prototype.

Although this was stated repeatedly, he hesitated this time.  He asked me to back off on that idea because he also wants to bring aboard a bunch of other participants.  I don't know how many exactly.  But it sounded like three or four.  But the way he talked so generically about it, there could be 20 of them.

OK, so a little watered-down.  But there should be enough profit for a bunch of people in this.  So, I asked him what skills and benefits they would provide the business.  He said that he didn't know if they would.  But because people have helped him in the past, he felt like he wanted to reward them.

Here's where I balked.  A principle of business I've followed is that if you don't contribute to the business, then you're a drain on it.  Where there is a drain, it threatens the whole business and we all go down.  We're looking at a business that could employ a few hundred people.  And if the business goes down due to "too much charity", then all those people we've employed could be out of work and unable to support their families.  A business manager has to be aware of that great responsibility.

I tried to talk him out of it and explain that he could certainly be generous with his share of the profits and his salary.  And I'd even be willing to share my part of profits to help people out.  But the business money needs to go into the business.  And that helps everyone.

He got upset with me citing Biblical obligations, etc.  Then he made it clear to me that it was not a 50/50 deal.  He was the owner.  Not me.

I figure it would do well for me to just step out at this point.  The problem is that he's got all his equipment in my shed.  That's where we're going to be building it.  If I step out of this deal, then do I kick him out of the shed?  I know I have the right to do so.  But I still like the guy. I hope he's still my friend.

I was ready to put my money into the product because I believe it is a great product.  And I believe he is honorable and has good work ethic.  But he has no business sense ... at all... 

The thing is that I know that if he moves forward with this product with the business model he has in mind, he's going to spend a LOT of money on something that will never get built or shipped.  If I encourage him.  The best case scenario is that he actually gets it going and sells a major project.  Then he's barely able to execute at a significant loss.  I don't want to encourage that.

So, I'm certainly not going to put my money into this.  But I'm wondering if I should stand by and give him any help at all.  I feel like I'd be an enabler for something foolish.

Edited by Carborendum

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I completely agree with you.  It’s one thing to fully find a business and then dole out one’s share of profits as one sees fit. It’s another thing to bring outsiders into the inner circle of a business where you’ll be forced to deal with their possible ineptitude/malice/graft/bad advice/inability to play nice/theft of trade secrets, etc. I’d get out now, before things get really ugly (as you seem to sense that they will).

I don’t know that you need to go so far as to withdraw your moral support (or use of your shed) just because you don’t like how he plans to (ethically) develop/market a product that you know to be good.  I’d be more concerned about when (or if!) I’m going to get my shed back, whether they’re going to be responsible tenants, and/or whether their use of my property may somehow create an impression that I’m involved in the venture and/or expose me to liability for any resulting debts accidents or other misadventures.  So, I’d probably talk to a lawyer and to my homeowner’s insurance carrier; and if you chose to keep letting them use your shed I’d get them to sign a commercial real estate lease even if the rent is only something token like $1/month.

Edited by Just_A_Guy

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I just got through with mediating a dispute between my 16 yr old and her mom.  So forgive me if I sound like I'm talking to a teenager.  

A "Deal" is an important thing.  Unfortunately, the world is full of people who get together and make deals, and both of them walk away with a different understanding of what the deal actually is.  Sometimes, one of the people walks away not even understanding the other person thinks they have a deal.

Friendships are great, business dealings need to be dealt from a position of the absence of trust.  If you can't hash out something that can be written down and signed, something binding in court should there be a disagreement, then there shouldn't be a business deal.  

So yeah, you guys have a different understanding of what was agreed to in the past.  You're about to sink money into something.  Get things put down on paper, or no more deals.  You can offer use of your shed as a gesture to preserve the friendship, or you can give him a date to be out.  

It's a common thing for friendships to weaken or fall apart based on misunderstandings about business deals.  It's less common to have a friendship be maintained through a business deal.

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15 hours ago, Carborendum said:

1. Then he made it clear to me that it was not a 50/50 deal.  He was the owner.  Not me.
2. But he has no business sense ... at all...

If I were in this position, I would consider these recent events to be a blessing. Meaning, now is the time to bail. To have such a fundamental difference of business perspective and a major ownership blindside, he is doing you a favor by dropping these bombs on you now... before you put up 50% of the money. Good person or not, his success or not, helping others or not... your obligation is to you and your family first. If he is willing to drop bombs on you after years of working on this, he will do it again and again.

Kindly invite him to remove his stuff from your shed by "x" deadline. Leaving his stuff in your shed is bad idea for a variety of reasons.

Edited by NeedleinA

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Thank you all for your posts.  I've slept on it.  I need to give him a chance to fully explain himself.  Writing it down was an important suggestion.  Thanks, NT.

I'm going to ask him to write down what his intentions are -- or dictate them to me so I can write it down for him.  He's literate (in that he can read and write), but he isn't well educated. Then I can determine if that is a deal I want to be a part of.  I'll let him know then.

If the written deal looks bad, I figure I can give him until January to get his stuff out of my shed.  But I do need a written agreement for a lease and charge him $10 for the rent until January.

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21 hours ago, Carborendum said:

I figure it would do well for me to just step out at this point.  The problem is that he's got all his equipment in my shed.  That's where we're going to be building it.  If I step out of this deal, then do I kick him out of the shed?  I know I have the right to do so.  But I still like the guy. I hope he's still my friend.

I was ready to put my money into the product because I believe it is a great product.  And I believe he is honorable and has good work ethic.  But he has no business sense ... at all... 

The thing is that I know that if he moves forward with this product with the business model he has in mind, he's going to spend a LOT of money on something that will never get built or shipped.  If I encourage him.  The best case scenario is that he actually gets it going and sells a major project.  Then he's barely able to execute at a significant loss.  I don't want to encourage that.

So, I'm certainly not going to put my money into this.  But I'm wondering if I should stand by and give him any help at all.  I feel like I'd be an enabler for something foolish.

Many friendships (and marriages even) even over money.  Money seems to be a great divider between people at times.  Those who were previously friends cease to be, and those who were friendly turn antagonistic...all over money.

In your instance, I would say get out post haste unless you have a contract signed and relationships officially recognized.  Without the paperwork organizing a business, there should be NO business ideas implemented.  Without official paperwork organizing and specifying various relationships and agreements things can quickly go south.  I know it can cost money to do so, but the value of it means that the situation that you describe is less likely to occur.  When things are spelled out, it is a LOT harder to change the conditions already notated.

If you do not wish to get out, GO TO A LAWYER AND GET THE PAPERWORK WRITTEN.  It should have been done before any equipment was even stored on your property.  In a business venture, do NOTHING without paperwork to back it up.  If they are unwilling to have such paperwork it is a sign of either corruption or bad faith (in my opinion).

It could be that by withdrawing, your friend is no longer your friend.  This may happen sooner than later anyways, because without legal protections, there is no legal understanding that can bridge the gap between people when they want to go their different directions.  Unless they want to sign paperwork explicitly discussing the what, who's, where's, hows, and why's...they aren't your friend (in the business anyways) in the first place or have a vast misunderstanding of the reasons why such paperwork is normally needed in the first place.

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On 9/14/2020 at 7:25 AM, Carborendum said:

Thank you all for your posts.  I've slept on it.  I need to give him a chance to fully explain himself.  Writing it down was an important suggestion.  Thanks, NT.

I'm going to ask him to write down what his intentions are -- or dictate them to me so I can write it down for him.  He's literate (in that he can read and write), but he isn't well educated. Then I can determine if that is a deal I want to be a part of.  I'll let him know then.

If the written deal looks bad, I figure I can give him until January to get his stuff out of my shed.  But I do need a written agreement for a lease and charge him $10 for the rent until January.

I would suggest that a lawyer oversee the contract (what is written down) On this I agree with @JohnsonJones.  I would also suggest that all parties involved sign a NDA (None Disclosure Agreement).  You do not need a lawyer for that - you can find copies of NDA's on the internet.  Be careful regarding a patent.  They can cost more than they are worth and not provide the protection you expect.  It is my opinion that most such adventures fail because of marketing failures.  From your posts - this appears to be lacking and it does not appear that there is anyone involved with the needed skills.

It is also my opinion that if the concept is sound there are plenty of venture capitalist that can bring more than money to the table  - such as with manufacturing and distribution connections.   There is more to financing a new product than starting it on a shoe string and building a proto type.  If a venture capitalist is not willing to invest - your product is likely not as great as you may think.  Venture capitalist exist for the sole purpose of finding investments possibilities.

Lastly - I suggest that a business plan be put together.  If you leave this up the the venture capitalist or someone else it is likely that you both will lose control (minimum of 51%) of your company.  There was a movie a while back about this very thing and how an employee took control of McDonalds and left the original owner with nothing - not even the name.  Sorry I do not remember the title of the movie.  

 

The Traveler

Edited by Traveler

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