Hi Everyone,
Im not sure if this is 100% the best place to be asking the question, but at the moment im wanting any help/info I can get.
A family member bought a fruit and veg shop with a friend and the friends husband over a year ago. The business is owned 40/40/20. My family member owns 40, her friend 40 and her friends husband 20. At the time she was very skeptical about going into a business, especially with a friend. She told her that after a year if she didnt like it or it wasnt for her would she be able to get out of it and her friend said yes. The family member has confronted her friend she the friend says she cannot buy her out etc etc and basically saying we are all stuck in this position and we can't get out. My family member has asked them to sell the business and just take a loss. But the friend and husband say no and to just deal with it and try and improve the business.
Ok, so now the family member is wanting to get out of the business, the business is performing poorly and she is not even guaranteed a weekly wage, and if it does come it is only $400.
The friend is very controlling and wants things done her way and says no to her ideas and even belittles her to the point of telling her she wraps things incorrectly etc. But I digress.
My family member has a loan of 70k for the business and a housing loan of 66k
My question is, how can my family member get out of the situation, remove her name completely off the business? She does not even mind leaving the 70k in the business and just leaving (with her name taken off everything). I might add that they have rented a shed at the back and her name is also on that lease. VERY STICK SITUATION!
Is she able to add the business loan onto her housing loan?
When she leaves she has a job lined up which will atleast give her a salary of $500 per week
Is there a way out for her? with some or without the 70k she has put into the business
Any feedback at all would be great!
Thanks Everyone
I don't have any advice for your family member, but its so sad that questions like these always come after the fact. If they were so worried, all of this should have been written into some kind of business contract before they went into business together. Its strange, but its almost more important to get written agreements when doing business/investment with friends/family.
I agree bjsaust, it can easily be left out though, considering they were best friends and had been for 20 odd years.
And thanks for your input.
I would of thought it would be possible to just sign over my family members side in the business over to the friend and leave with the loan, or this ALOT more complex or even not possible?
Does anyone have any other feedback or if there is a way out?
Sounds like no exit strategy for any member of the venture was put in place before entering in the agreement together. I havent got any specific advise for this scenario, but there will be (financial and emotional) lessons learned on this that is for sure. It sounds weird, but exit strategy should be the first thing to consider when making most decisions in life.
pinkboy….married… with an exit strategy! *JOKE*
I know pinkboy, lesson learnt it would be safe to say.
Does anyone else have advice for my family member? Is their any accountants around at the moment?
Maybe I'm missing something, but why doesn't she just take the new job? Whats forcing her to turn up to the shop every day? You said she'd be prepared to lose the 70k and walk away, so whats the difference between signing everything over for free and taking the loss, or just going on with her life?
The difference being the 70k is against the equity in her home. And if for any reason the the friend and husband cannot pay, she is obviously liable for rent on the place aswell as rent for the storage shed etc. Im also not sure of the exact details of the loan they have together, I know she said she has a loan of 70k, woudl they only come after the house if she coulodn't afford to pay off that 70k?
If she did just leave and leave her name on everything, would she not be liable for anythign payments that the other 2 partners couldn't make?
Try the following:
Start the new job abd getthe $500 a week into her pocket.
Do NOT sign over the $70 loan or walk away from it.
See what the partnership agreement has to say about how to end the partnership.
Have the partnership valued; you may find that the value has already dropped.
Remind the remaining 40% + 20% partners that their share of profits will increase once she rrtires from the partnership.
Offer to sell your 40% to the guy with just 20% and give him the controling interest.
Apply to the District Court to wind up the partnership.Thanks for the reply Colin. I also might add the the partners say thay "cant afford" to buy her out. Even though they have a couple of investment properties around the place and seem to have a decement amount of money.
So would you suggest to get the partnership valued and try to sell the share to the other partners?
I have replied to the other thread regarding this.
I think she is in potentially big trouble. partners are jointly and severably liable. So if one doesn't pay the other 2 must, if 2 don't pay the remaining partner must.
Her house is used as security for the loan. So she must keep up the repayments or lose the house.
The landlord will require the rent to be paid. If this doesn't happen and there is a default he could come after any and all of the partners (assuming they are all on the lease, or guaranteed the lease.) He could go to court and get a judgment against all. He can then chose how to enforce his judgment and recover the money owed (possibly another 6 years of rent!). He could get further court orders to sell one of more of the properties of any of the partners, seize goods, garnish wages and bank accounts etc etc.
Once you sign a lease there is generally no way out. It is like getting a loan from a bank for 10 years. You cannot just say I want out after 5 years, you are legally obliged to honor the agreement.
In this case I would suggest the friend try to get the other partners to buy her out, or offer to get her share to them for no money. The landlord will need to be approached and the lease renegotiated. The landlord is unlikely to do this unless the remaining partners are in a stronger financial position that they were at the start of the lease – he will essentially be giving up security by letting one person out.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Whos name is on the lease?If its just your name, you 'may' have a small amount of leverage by;
a. Locking out the other partners from the leased property and
b. Selling the lease to a 3rd party (if the lease allows for this and the owner agrees).
You can force the termination of the partnership but this will require some court help…unless you can negociate a sale with the remaining 2 partners.
As long as you remain as a partner, you remain 100% liable for ALL the debts the partnership incurs, even after you no longer have any day to day management! READ THIS AGAIN.
My strongest advice is to get a lawyer ASAP.
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