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I'm one of three members of a rather small German startup (online shop with around 100.000 sales per year). My partners and me met during our IS studies and decided to start a business together (while still studying). It went quite well, me and one of the others started working on it full time after getting our degree. The third one couldn't keep up and worked "part time" until he decided to cancel university and get a degree with an apprenticeship.

In the meantime, we had grown so much that it was not possible anymore to manage the amount of work by just working part-time on it. But he still wanted to stay a part of the company. So we came up with a temporary solution, that he would pay somebody to do his job for him for the half of his salary. The other half he would keep for himself.

The logic behind that was: As long as the job gets done, it shouldn't actually matter who does it and for how much. But soon we noticed, that the substitue person did the job faster, better and more reliable. We started communicating with that person directly to assign tasks and get feedback instead of putting our third member in the middle. He is completely focused on the apprenticeship right now, so assigning him the tasks first and then let him delegate would actually cause delays and would make the communication unneccessarily complicated, because he can only take care of it after he comes home from work. It simply wouldn't make any sense.

So now we essentially got a team member whose function is... well... non-existent. That means he gets money for doing absolutely nothing company-related.

In during Christmas time the workload (and the sales) usually increases drastically. So we used to pay ourselves bonuses in January. But this time we brought it up during a meeting that it wouldn't be quite fair to pay everyone the same amount. The third member didn't actually do more than usually, he didn't even realize how much the workload had increased. He agreed to getting paid 1/3 of what me and the other one got. He also agreed to the fact that the work balance is quite off since he had started the apprenticeship. He then also anounced, that he would like to stay at the company where he's serving his apprenticeship and therefore would like to leave ours. The meeting went peacefully, we talked about old times and how sad it is that he's leaving, but we also agreed that this is the best solution reviewing on how things were going lately. We scheduled the official resignation for April.

Now, 3 weeks after the meeting, he sent us an email, very formally, quite aggressively and intimidatingly demanding to pay him the whole 100% of the January bonus and to provide him all company figures for all (!) business years (including things like amount of customers etc.) as well as copies of all existing contracts. According to him the sales and profit don't fit together and he's suspecting that we're not being honest with him. He even set a deadline for his demands and explicitly declared the demands as not negotiable. If we decline, we will hear from his lawyer. [¹]

Further he demands that from now on we put him back in the middle of the communication between us and the person currently doing his job, because he is a relevant part of the company and thus not to be bypassed.

So, basically he revoked every verbal agreement we had made at the last meeting and now claims the exact opposite. Even on the phone he only repeated his arguments from the email over and over without even admitting any counter arguments. He just hinted once again that we can either do it as he told us or else his lawyer would take care of it.

It really stresses me to a point where I'm completely clueless and afraid to make a move. I have no idea what's going on whatsoever - I actually always considered him as a close friend. I never knew this side of him, so it's like talking to a complete stranger. I can't think of any reason why he would reproach me / us for not being honest with him. Our whole company was built on trust and honesty, we didn't even make any contracts concerning company internal issues.

So, what would be the best way to deal with someone who is aggressively and out of nowhere demanding something we did not agree on? What could be an approach to discuss something when the other person just smashes every counter argument by permanently repeating his own? Should we just give in to prevent damage, even though he also could cause damage if we do? Could it be helpful to explain my / our point of view via email? How to tell somebody who sees himself as a victim that he's actually victimizing himself?

I'm not even sure if I'm asking the right questions here. Maybe someon has encountered a similar situation and could share her experience.

[¹] We're suspecting that there is another person involved on his side giving him some kind of "advice" based on his side of the story. We don't want sensitive company information to be seen by an uninvolved party, but he stubbornly refuses to tell us what he's about to do with all these documents. Technically it is his right to get a copy, but he seems to be out of control and we're not sure about how much harm he could / would cause. There wouldn't have been a problem whatsoever if he just had asked for it "normally".

closed as too broad by Jim G., IDrinkandIKnowThings, Garrison Neely, gnat, jcmeloni Feb 14 '15 at 12:36

Please edit the question to limit it to a specific problem with enough detail to identify an adequate answer. Avoid asking multiple distinct questions at once. See the How to Ask page for help clarifying this question. If this question can be reworded to fit the rules in the help center, please edit the question.

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Your problem is that you are in a contractural relationship but didn't bother to create the contract. What you need to do right now today is hire a lawyer.

Whether this person is contributing or not, he is effectively one of the owners of the company. That gives him differnt rights than an employee. So run, do not walk to a lawyer's office.

  • But I'm not sure if I knew what to tell the lawyer... Just to make it clear, it is not about the January bonus, in fact, it's not about money at all - he owns 1/3 of the company and he will be paid 1/3 of the assets when he leaves, there was never a discussion about that. The actual problem is his offensive and kind of unpredictable behavior that came out of newhere and we don't know how to deal with. We don't want to reveal any figures or facts to him, not because we're hiding something, but because we don't know what he's going to do with it. – user32592 Feb 11 '15 at 19:49
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    And since he owns the company you likely have no legal right to withhold the information. You need a lawyer, you need one today. Incidentally, this is why it is usually a bad idea to go into business with friends. – HLGEM Feb 11 '15 at 20:03
  • Agreed on that last part, even though we just met each other at university for the first time... And yes, I'm aware that I have no right to withhold the information, but we offered him to meet before the deadline he had set and just discuss all the documents and figures together, making sure there is no other party involved. But he declined. – user32592 Feb 11 '15 at 20:04
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    Probably becasue his lawyer told him to. – HLGEM Feb 11 '15 at 20:10
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    @user32592 He might agree to a meeting in your office where you allow his lawyer to look over the documents without removing them from the office, but hire a lawyer before you send it and discuss what agreements need to be signed before the meeting (NDA, non-compete, etc). – IllusiveBrian Feb 11 '15 at 20:33
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First things first: realize that there is a very real chance that things are about to get messy. You might very well deal with a degree of unpleasantness, foolishness, anger, bitterness, and random illogical behavior that makes no sense to you than you ever thought possible.

Second, one of the most valuable pieces of information one can have is forewarning that they might be drug into a fight. The only thing that is comparable to the co-owners of a business ending up in this position is a couple getting a divorce. It's that unpleasant, and often more serious and complex because more than just two people and their common property are involved (kids might not even make it as complicated as a business owner relationship gone too sour).

You will need to prepare yourself, and you will very likely need someone who is an expert, has seen this sort of thing before, and knows what the rights and responsibilities of all parties involved really are.

Do not give out any privileged information, business or otherwise. This includes financial statements that you think they have a claim to.

Do not agree, affirm, acknowledge, or in any way concretely give additional weight to any arguments of the other party.

Do not suddenly pay them money, change past agreements, increase their share of a bonus, etc.

Do not antagonize, engage, or frankly even acknowledge the other parties accusations, mean-spiritedness, insults, or ultimatums. It's a kind of "turn the other cheek" mentality, but if one person acts nuts and the other person responds rationally, calmly, and warmly, things are not encouraged to escalate. Allowing the other person to come to their senses is nice, but do not forget for a moment that only recently they were threatening you and accusing you of cheating them.

Finally, and most importantly: For god's sake, get lawyer of your own to discuss this with - yesterday!

Figuring Out What's Really Going On

From your description, this person has decided they want more than you'd mutually (verbally) agreed to. They want money, authority, recognition, power - they want more!

Thing is, if your agreement was verbal, it probably just didn't happen. Really, it probably never existed, the conversations never occurred, timey-wimey stuff, that plotline has been retconned - the point is, it wasn't written down so it's rarely legally binding in any useful way. Tell a lawyer about it, but they'll probably wave a hand at you and say "not legally binding".

Why A Lawyer?

What is he entitled to, by law? What are you and the other owner entitled to, by law? Do you have a written ownership agreement? Is he listed on bank accounts? Does he have signing authority for the company established? Is this "company" incorporated in any way, or is it just an informal group of friends doing work? IF so, what do those papers say- how EXACTLY are they worded?

What have you all said in in writing (emails included), going back to day 1 of the business? Etc.

The details matter here, very very very very (have I said this enough?) very very much!

What you can do will depend upon the details. Some situations call for "close the business": fire all employees, resign, clean out the bank accounts (maybe distributing the balance to 'owners'), then form a new entity, hire employees, and the only thing the customer's hear is "Hey, we are now known as New XYC Inc - we'll be serving you the same as we always have, don't worry!" - all on the same day. But maybe, depending on the agreements and local laws, this isn't possible - I can't say.

What will ensue, whether through arbitration or legal proceedings, is negotiation. You need all the bargaining chips you can get, so don't give things away for free or do anything without consulting a professional legal expert - don't make things worse than they already are!

You'll find out more as time goes on, but be aware that you might never understand what really happened. Maybe someone put a bug in his ear, or maybe he just woke from a bad dream and decided he was getting conned and deserved more than he was getting. Maybe his job/degree/relationship/life isn't working out and he's getting desperate. Maybe he really is getting a raw deal and he just put 2 and 2 together. I don't know, and you might never know either.

What's important is that you do not embody a spirit of grieving or bitterness, and react rationally and productively with a keen eye on getting this over with and attaining the best possible final outcome. The past is dead, and the future is only bright if you embrace reality for what it is and act towards a better day right now. This will eventually all be over and just be an unpleasant memory - how long that will take and how bad a memory it will be will depend on actions you take over the next few days.

Good luck, and be ready to push back client work and so forth. All of you owners are going to be spending a lot of time talking to lawyers to figure out what to do, before you do anything at all.

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So, the number 1 rule in any official business dealing is that if it's not in writing, it didn't happen. It's the same reason why you shouldn't put in your notice to your old company before you get the written job offer, and also why pay structures among the partners/executives of a company are usually in a written, formal contract.

As for right now, I agree with the overall consensus in that you need to get a lawyer and dig up any and all official and unofficial documentation related to your relationship with that 3rd partner.

EDIT: removed information about sensitive company info; he is still a part-owner (as revealed through comments), and as such is entitled to such information. That said, the part about the lawyer is still valid.

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If he is a partner with access to data and does not know the status of contracts because he is not doing his job that is his problem. His demands are proof he not doing his job.

I am not an attorney but if you treat him as a 3rd party and supply information he has access to then I think you are feeding into him.

I don't like getting attorneys involved but that is where this is. I agree you need advice from counsel before you do anything.

Again I am not an attorney but I think a demand letter from his attorney for data he should know is good for your case. As bad as things are I think you want that letter. If you negotiate with him he will get smarter. An unreasonable demand is good for you. Judge he is a partner and is demanding data he not only has access to but if he was contributing to the company he should know.

You probably need to lock him out and take away his password. But let an attorney tell you how to do that. Don't tell him you have consulted an attorney. Don't antagonize him but let him be stupid. Stay in contact with your customers. If he contacts a customer and does something to intentionally harm the company you need to be on top of that. You need an attorney so you can be on top of that.

Personally I would withhold all bonuses. Tell him until you can get some agreement in writing you are withholding all bonuses. (This is cash you may need for an attorney)

If he has signatory authority on the bank account he may drain it. You need an attorney. The problem you have is that as soon as you lock him out he has a different legal standing.

You are probably going to need to buy him out or honor his share but I suspect you can get out of paying him for doing nothing. But it may cost you more in attorney fees then paying him for doing nothing. He said attorney first - if a partner says attorney that is a very bad thing you cannot assume is going to fix itself.

  • Very interesting and helpful points, thank you very much! – user32592 Feb 11 '15 at 22:34
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    @user32592: before acting on any of the above, talk to an attorney. – NotMe Feb 12 '15 at 0:33
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    @NotMe "I agree you need advice from counsel before you do anything" – paparazzo Feb 12 '15 at 0:35
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    @Blam: I was mostly just highlighting that particular point. However I think the lockouts, requiring a demand letter for things this person should have unfettered access to, withholding the annual bonus - which is his by rights, etc is just going to make the problem much worse. The final point about pay: if they agreed to pay this person, they need to do so otherwise they can run into employment law problems. That said they can fire him immediately so that he is no longer an owner AND an employee. Which should make it easier to deal with just the ownership part. – NotMe Feb 12 '15 at 16:03
  • @NotMe What? It says the opposite of requiring a demand letter for requiring access - it says a demand letter for stuff he as access to silly. Really you think they can just void the partnership by firing him? But they have NOT agreed to pay. He has changed what was agreed to verbally. Withhold pay until an agreement in writing is reasonable. – paparazzo Feb 12 '15 at 16:59
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I've been here: having a partner who verbally agrees to one thing then turns completely around. It can be very hard to remove them.

You have a couple problems. The first is that this person is a 1/3 owner. Now that does not normally entitle them to a salary. However it does entitle them to profit sharing. The "bonus" you pay yourself at the end of the year is just that. Profit sharing is normally divided up by taking the total profits (or whatever amount up to that you are comfortable with) and giving each owner a percentage based on their percentage ownership in the company. So if this guy owns 1/3 then he gets 1/3 of the bonus. I'd say you need to take care of this right now.

Next, as an owner he does have specific rights to the financials. Speak to an attorney to determine exactly what level of information he is supposed to have. Now this information is confidential, however he can share it with appropriate counsel. If you have proof he is sharing it beyond that then you have a specific issue your attorney can help you with. Did I mention talk to an attorney? In my case a partner thought that sharing financials with a competitor was a good idea.

Now looking at those end of year bonuses... you might consider just plowing that money right back into the business. Growth is a good thing and if there is no bonus, well...

Finally, get with your other partner and figure out what the value of the company is. Be realistic and research how to put a value on a company. Then make an offer to this third wheel to buy them out.

Now one possible approach is a scorched earth policy. Close the business, sell the assets and give this person their share. If it's as small as you say then your assets are likely just stock on hand plus whatever is in the bank. That's not likely to be a whole lot and may be quite a bit less than trying to buy this person out of the company.

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Consider simply 'giving in'. If he wants amount X and for you that is a means to get rid of all the hassle, that may be worth it.

Make sure he signs an agreement that he is no longer in any way associated with the business and cannot place further claims. If you do this, tell him that that is your only reason for coming to a quick settlement (thereby implying: it is also not in your interest to drag this out and maybe get less).

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