QUESTION
How easy/difficult is it for him to sue me even though there is no written or agreed upon contract?
Asked on Dec 27th, 2015 on Labor and Employment - California
More details to this question:
Last year, I met my colleague over coffee and we decided to work together. The deal was I would form a LLC with my investment and business idea; he would bring in certain investment and provide services. We discussed about offering a certain percentage to him of ownership of LLC in return for his investment AND services. No written contract was drawn; just verbal discussion. It was made clear that I would be the majority member of the LLC and we did discuss rough percentages of each of us (60/40). I formed the LLC; he later brought funds late (after a few months of me forming the LLC against the original discussion wherein he was supposed to bring investment at time of LLC creation); he started providing services and working together with me (though less and not adequate services as he was supposed to provide per initial discussion; he was unable to complete his services on time and with quality as we had earlier discussed and over emails). Currently, I am the sole owner of the LLC and the bank business account. He has been working hand in hand with me through the time he put in his money. Now, he is asking to be added onto the LLC as we had discussed initially. The business is not doing well as he did not full fill his services /commitments on time. Though not averse to adding him on LLC; I am sure he would stop providing services once his name is added. What are my legal options? What legal options does he have? How easy/difficult is it for me to sue him? Can he claim himself to be a “lender/creditor” to my LLC even though that was not the original plan? Can a lender/creditor be actively working in the same LLC providing services (is this not a conflict of interest for a lender/creditor? How do you think we should proceed? Ideally, I had rather pay him off a certain amount (not his entire investment) than add him to LLC. Can he claim his full investment back?
2 ANSWERS
Admiralty / Maritime Attorney serving Monrovia, CA
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The Law Office of Nathan Wagner
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In theory, you can sue based upon breach of a verbal contract. In your case, it sounds like your lawsuit would be a real long shot. He can correctly claim that he did everything he promised to do (he just did not do it as quickly or as well as you imagined he would). Moreover, the cost and delay of the lawsuit could be fatal to a new business like yours.Being a lender and an employee to the LLC does not create a conflict of interest. He could possibly sue you for breach of contract because you have not made him a member of the LLC, as you promised to do. He can claim the value of 40% of the business. What do you want to accomplish? Do you want to him to provide his services in the future? If so, put it in writing this time. Offer to add him to the LLC membership, but make it conditional on his continuing to provide services. Do you want to buy him out? If so, make him an offer to pay back a portion of his financial contribution.
Answered on Jan 18th, 2016 at 4:52 PM
Elder Law Attorney serving Hollister, CA
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Charles R. Perry
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You probably need to talk about this with a business attorney. It is relatively easy to sue, but you should have an attorney's guidance if the case is not in small claims court. An owner of an interest in an LLC can also be a creditor. It's hard to know what is happening here. No attorney can give you specific advice on this forum, and you would not want it among other things, that advice would not be protected by the attorney-client privilege. As I said above, you really should speak with a business attorney about this. I am sure you can find one here on LawQA, or through your local county bar association.
Answered on Jan 18th, 2016 at 9:19 AM