Ceating a new business and stealing clients

[borreman]

What is the name of your state? Nevada

My business partner and I have serious issues and I am thinking of selling my 50% share (to him or someone else). However, he is the "technical knowledge" guy (I am the business guy) and I fear he might just create a new business on his own and "transfer" (or steal) our current clientele to his new business with me out of the picture. By doing this, my current 50% share would not be worth much more, since the whole clientele would be gone.

Would this be legal considering I own 50% of that clientele, or does he have the right to do that since he also owns 50% of the clients?

I am a bit lost.... Thanks for any input.

 

[JETX]

So, what EXACTLY does your partnership agreement say as to a dissolution of the partnership??
The customer list of the business is 'owned' by the business. If you sell your interest in the business, you give up legal claim to that business property (the customer list).

 

[las365]

This is the pertinent question.

So, what EXACTLY does your partnership agreement say as to a dissolution of the partnership??

How bad is the relationship between you and your partner? What makes you think he is contemplating starting a new company and stealing your clients? As a practical matter, all that would do is end up costing both of you a bunch of money in attorney fees, time, and trouble.

Generally speaking, the way to proceed with a sale of your portion of the business is to obtain a professional valuation of the company and sell your half based on that valuation. Get paid up front (no "payment plan"), no matter who you sell to. What happens after that isn't your problem.

 

[borreman]

Thank you for your input. My worries do not stem from what happens if I sell my shares, as I really dont care what happens after I get my money. My worries is that my partner would start a new business by himself, and get our current customers to join his new business before I sell my shares... Would he have the right to do that or do I have any saying in this?

 

[las365]

What sort of business entity did you create to operate the business? Corporation? Partnership? LLC? Did you just get a d/b/a?

What agreement do you have as to who owns what and who does what? What does your written documentation say?

 

[moburkes]

Thank you for your input. My worries do not stem from what happens if I sell my shares, as I really dont care what happens after I get my money. My worries is that my partner would start a new business by himself, and get our current customers to join his new business before I sell my shares... Would he have the right to do that or do I have any saying in this?

You haven't responded to the question that you've been asked twice. The poster just above also hinted that the answer to the question is what anyone needs in order to assist you.

 

[borreman]

Sorry. We created an LLC, both owning 50% of shares, and we operate under a dba.
The documentation does not specify who does what. It just states that we can sell our shares or dissolute the LLC only with the agreement of both members. Nothing else. Why is it important to know this if the issue is that I am worried he would create a totally new company and get our clients to join his new company?

Thanks for your help

 

[BoredAtty]

Members of an LLC owe the LLC a duty of loyalty. This duty prevents a member from competing against the LLC. If your partner were to steal the LLC's clients before the LLC were dissolved, the LLC would have a cause of action against him.

 

[DStaub]

My worries do not stem from what happens if I sell my shares, as I really dont care what happens after I get my money.

Unless the potential buyer is completely clueless, anything that concerns you should concern your buyer as well. If your buyer's concerns cannot be resolved satisfactorily, either you won't be able to find a buyer at all or you will find a buyer who expects a huge discount to reflect the risks that he has to take.

You need to resolve this issue, whether or not you plan to sell your interest.

Members of an LLC owe the LLC a duty of loyalty. This duty prevents a member from competing against the LLC. If your partner were to steal the LLC's clients before the LLC were dissolved, the LLC would have a cause of action against him.

This may be completely true in some states, but in other states it depends on whether the LLC is member-managed or manager-managed. Also some state statutes allow a great deal of leeway to members to waive duties. I would not recommend relying on a general duty of loyalty but suggest that you address the issue front and center ASAP.

 

[borreman]

This LLC is member-managed. We are in Nevada.

Thank you very much all for your input and help!

 

[BoredAtty]

This may be completely true in some states, but in other states it depends on whether the LLC is member-managed or manager-managed. Also some state statutes allow a great deal of leeway to members to waive duties. I would not recommend relying on a general duty of loyalty but suggest that you address the issue front and center ASAP.

I agree with that. Suing for a breach of the duty of loyalty would be something to consider doing after the fact, but is not something to rely on.