Q: We separated from our former business partner in the 3rd quarter 2008, at which time he took over the entire company. Earlier this year he told us he would need to file an ‘08 tax extension for the company because he wasn’t able to pay any amount owed at filing time AND he still owed the CPA from the last year’s services. We also found out that he has not provided the CPA with any of the company’s tax documents from ‘08 and has missed the corporate extension deadlines. 

Even though we filed for an extension, paid an estimated amount and have submitted all our personal tax documents to the CPA (we all use the same guy), our personal tax filing is in limbo pending information from the company’s filings.

How can we move forward and what can we do to force our ex-partner to get the paperwork in?

A: Assuming you have the right provisions in your business separation agreement, your former partner is in breach of contract. The next step is to send a lawyer’s letter demanding copies of the company’s financial statements and possibly threatening a lawsuit to compel him to turn over the documents. There’s no reason he can’t run basic P&Ls, balance sheets, etc., to at least give you a baseline (unless, of course, he hasn’t done any bookkeeping since you left him). That said, you may have the ability to amend your tax returns once you get this information, so all is not lost–but it is inconvenient. It might be worth exploring with your accountants whether you can “extrapolate” the company’s earnings (bearing in mind that you were only present for three quarters of the year) from what you knew of the company’s financial situation as of the date you parted company. Ideally, the ex-partner should be held liable for any costs and fees you may have to incur if he didn’t meet his contractual obligations.

You may also want to reach out to an independent accountant for guidance, just to be sure that your CPA is giving you fair and unbiased advice, and isn’t tainted by any conflict of interest.

Think about it: You’re humming merrily along with your business partner, thinking you’re covered (because of COURSE, you hired an attorney and worked out an agreement), and your partner gets hit by a bus and dies. Your partner’s spouse (whom you’ve never really gotten along well with) looks at the agreement, and sees that it’s invalid because you signed it 12 years ago. Brings a lawsuit to get hold of the “dearly departed’s” share of the business. All of the careful buyout formulas and procedures you’ve thought through go down the toilet.

Your state might not have this law on the books . . . but maybe it does. Have you checked?  Have you dusted off that agreement to make sure that it still meets your needs after time has passed? Are the same owners involved in the business? Does the valuation formula make sense in light of changes to your business? These are issues you should revisit periodically with counsel.

And there are a number of other legal issues that may be due for a checkup.  To have a good sense of what they are, get your copy of my Legal Health Checklist, available at GreatBusinessLawResources.com–and make sure that your business records and practices are fortified against potential claims and lawsuits.

But for those of you who just can’t wait for the info, register for my free preview teleclass on Oct. 6: Choose the Right Partner and Change Your Business from Tailspin to Steady! For more information about choosing business partners wisely, visit GreatBusinessLawResources.com.

A: Your question is a good one, and the answer is not black-and-white.

Generally, unless you have a provision in your operating agreement (or in your state’s law) that prohibits someone from working in two potentially competing companies at once, it’s not outright illegal for someone to do so. However, it certainly raises questions of loyalty.  After all, if you’re involved in one or more companies and a potential client comes in, through which company do you service the client?

State laws do vary, so I’d recommend that you speak to a local attorney to get a definitive answer to your question.  You can find attorneys through your local bar association–look for ones that focus on corporate and LLC law.

Listen in to my conversation with Rosalie Lober, PhD., author of the newly-released Run Your Business Like a Fortune 100: 7 Principles for Boosting Profits. We cover:

• Rosalie’s case study of Terra Plantworks, which grew revenue from $3 million to $11 million in three years, by letting go of less-profitable business divisions–and how Terra came to that decision
• The importance of having a fully-integrated business
• Three key steps to doing your due diligence on any strategic alliance partner
• The top three problem areas for most strategic alliances (and, yes, how a written agreement can alleviate them)

Q: I deposited more than $20,000 into my business partner’s account under the impression that he would add my name to the new company and to the house I had paid off for him and that he would put my name on the new car title,  too. But none of the above has happened and he refuses to discuss it since I am not going hungry or without a place to stay.

He now says he cannot trust ANY woman to do the right thing in money matters that involve him (But he sure took my money without any qualms).  How can this be resolved?

A: You have a thorny situation on your hands, and I don’t envy you.  Unfortunately, without having anything in writing (which I assume you don’t; otherwise your business partner wouldn’t be as cavalier with your money), your only option right now is to sue him.

You may get lucky in that the threat of bringing a lawsuit (and the costs he’ll incur) may make him reconsider his actions,  either by making you a rightful business partner in writing or by refunding your money.  The catch is that you’d need (and want) to have your own counsel begin this process for you.  If you try to handle this yourself, he may not take you seriously (especially as he doesn’t seem to do doing so now).  Contact your local bar association, as it may be able to give you referrals to attorneys in your area who are familiar with these legal issues.