I’m in a verbal partnership arrangement and need some advice.

I have a corporation that has had many clients and has created $150K in revenue for past few years. I started a partnership a year ago (not in writing) that going well. About 6-8 months ago, a friend began to solicit me and my partner to “join forces” under one company, that has no customers and no revenue. The only thing my friend was bringing to the table was the fact that he was working on two patents. At the time, “joining forces” made no sense to me and my partner.

Time went on and months later my fiend was still pushing me to work with him. I decided to listen to his full pitch and thought he had some very good ideas, at which point I went to my current partner and suggested that my friend had some good ideas and maybe he should listen to them too. Well, my partner quickly went on the defensive and decided there was too much of a conflict of interest. So he decided he wanted to part ways with me. This was not easy since there was software that was developed as part of the partnership and dissolving became a mess that isn’t even officially complete yet.

Enter my friend again. I began to talk to my friend about his business idea and creating a partnership where my company would be owned by a new joint venture company my friend created, even though this joint venture company had no clients and no revenue…only the promise and hope of good fortune. I spent some time with my friend developing the business plan with him which included my company eventually being absorbed by the new company I was now helping (minimally) to form. During this same period of helping with the business plan, my friend also began to help me with the dissolution from my first partner because he had interest in the software components from the first partnership that could be used under my friend’s patents and as part of the new joint venture. During this time my friend helped me write communications to my current partner and suggested hiring an attorney to put pressure on my partner to play nice. My friend also paid a few thousand dollars for attorney’s fees to write a couple of official letters to my partner, which I did not ask him to do. I realize now that he did this not because he was being my friend, but because he interest in my company’s assets previously mentioned.

My friend did provide some help to me during a vulnerable time. But now, just a couple of months after to verbally agreeing (yes…nothing in writing yet) to move forward with him, his actions and ideas about how we should do things with the new company as making it very difficult for me to move forward with my current company which provides the revenue my family depends on daily. After talking with my wife, I realized that I with this new partnership with my friend, my company is providing lots of tangible things (customers, revenue, software components, etc.) that the new company needs to function with, and my friend is still bringing only pending patents and the hope of riches. So I am now seeing this as an unfair “trade” of what we are both bringing to the table, especially because he wants to restrict me (to a degree) with what I want to do with my own company, which he is claming he already owns part of, even though we have no written agreement.

In short, I let my friendship cloud my business judgment. And now my friend is asking me to sign an official agreement that shows my company being owned as part of an LLC by the new joint ownership company. I am not signing it and have told him that I want to restructure our partnership differently so my current company is not owned by the new joint ownership company. But he is trying to play hardball and make me stick to a verbal agreement that I now see is not a good business decision for me. Again, he is saying "I own part of your company" and "backing out now would be cutting my own head off".

Does my “friend” have any claim of ownership to my current company (that he had no part in building) that was to be an asset of the new company? Does he have any right to claim ownership of anything I alone created? I clearly see that he is only interested in the big prize and not my company, but everything that has been created by my company as a means to make his company (the new proposed joint ownership company) look like it has more than it does.

I just want out of the situation with my "friend" and have no desire to take on any more partners. Do I have anything to worry about?

Thanks!

Honestly, I did not go through your post step by step. Some questions change lives and should be answered by Attorneys and this seems somewhat complicated.

However, in general - it will come down to your word against his word - no oral contract unless there was a meeting of the minds and I don't know that there ever was.

Are oral contracts/agreements binding? Sure. If you both worked under the cloak of an oral agreement in any fashion, yes, it's binding on both of you.

Morally - that's your decision. Legally, if you don't want to make him a part of your new company, don't want to sign anything, then don't.

If it ends up in Court a Judge will weigh everything and decide.

WoW! So, I will say that it turns out a verbal contract is a lot more powerful than you would think. A partnership is a lot like a common law marriage in most states. While it all comes down to proof of words said it is always better to get it in writing. I currently have a basic agreement on a piece of yellow legal paper that my partner and I signed. It literally states that we are partners working on a legal agreement but in the mean time these are the set rules of the game.

I hope you already solved your problem and all is well. Just remember that fences make better neighbors and contracts make better friends.