Someones trying to sucker me!

[Bigguy2468]

Well, about 5 years ago I was looking at going on my own and had approached a guy that I knew from the business community about starting a partnership together. Oh, I should mention that I am in the province of Nova Scotia, Canada.

I was working at the time for another guy as an employee and was looking to venture out on my own. I had a clientele base that would generate about $100,000 gross revenue per year that came with me and had been customers of mine for over 10 years. So why did I need a partner, well, the business plan was based on selling an item to the customers that they paid a subscription for as a residual income and you needed $$$ to do that.

This person I approached represented himself as someone who had the resources to do the financing and asked me to do up a business proposal for the first year. I did so and it stated that he would have to put up about $95,000 the first year to facilitate the plan and I would do 100% of the work. In return he wanted 70% of the business and I was to take 30%, yes, this was a big percentage for him, but I felt that if he was going to put up the money I could live with that.

So then the next thing that happened was just prior to commencing work, he tells me that he has a relative that he wants to help out and is going to give them 20% and keep 50% for himself for a small investment from them, this part was completely looked after between him and the relative, I had no input in this arrangement or the amount of $$$ that they put in. He mentioned that this persons son would come to work with me in the business at some point as well. I had mixed feelings about this because it technically wasn't part of the original plan, but I agreed to it. By the way, before going any further it's important to note that we have no shareholders agreement at all.

So work commenced, and to speed things up a bit, 6 months into the first years plan we have use 25% of the budgeted financing and are out of money. I have a meeting with him and holy crap he's talking real different, like, "how much money do you need...this is getting expensive". Anyway, I end up having to change the game plan and had no choice but to deviate away from the original plan as the money obviously wasn't going to be there. I managed to convince the customers I was dealing with to pay more money up front for a lower monthly subscription fee and succeeded for the most part. I was continuously being told by him that he was going through a rough time himself, etc, etc, and couldn't put in anymore money yet he still did not do "any" work and I was doing 100% of everything, not even his relatives son was here doing anything as promised. I found myself in a very awkward situation, but kept on going. I brought up the need for more of this money, but after a couple of years of slinging it out doing all the work, I knew it wasn't coming.

So the other day I go and meet with the guy because I want to get out and go on my own. So he comes up with this "brilliant" plan to sell the accounts, take his share of the money, and says that it's going to work in my favor because he'll hand the business name, vehicles, debt, etc, over to me and I can own the business 100%, gosh, thanks!? He tells me that we're selling all the accounts and there isn't anything I can do about it. I take all the risk and he walks away with the gravy, a lot of good the company is going to do me with the all the overhead and the clientele gone, he must think I'm stupid!

Here is what I want to do:
Tell him that as I am no longer willing to go any further, I am taking 30% of the clientele, 30% of the debt, and 30% of the assets. Is there anything wrong with that. My understanding is that without a shareholders agreement there is little he can do to make me sell, it this true. What can he do to me?
What are my options here, with absolutely no shareholders agreement is he limited in what he can do?

I would really appreciate any help on this matter.

Bigguy2468

[akula]

hmmm...hi

interesting facts

look, i'm a lawyer by training but i don't think now is the best time to start brainstorming legal issues like shareholder agreements or corporate law in general
i think the best way forward at this time is to start thinking about your alternative dispute resolution (ADR) options

really, you still have negotiation and mediation before you have to think about litigation

my advice for you at this stage is to develop an interest in principled negotiation, because it's all fine taking a position such as "I am taking 30% of the clientele, 30% of the debt, and 30% of the assets", except it might not get you the results that you want

have you ever talked to anyone on how to do principled negotiation?

[Bigguy2468]

I looked into the link you had to principled negotiation and it seems that the underlying assumption they take is if your dealing with people that are willing to be reasonable and I don't believe that to be the case.
I totally believe this person knew starting out that they didn't have the money they stated they did.
At this point I paid to go in and see a business lawyer to do a exploratory of my options. According to this lawyer under Canadian Law, especially in light of no shareholders agreement, there is little he can do to force me to sell. Canadian Law protects the rights of any minority shareholder.
The lawyer says that if they want to sell out their share they can, but that doesn't let them off the hook for their percentage of the debt like vehicles and such. This means that if they sold a total of 70% of the business and took the money it would have to be minus 70% of their share of the vehicles, etc. Otherwise, seeing there are 3 vehicles, we each could take 1 and be responsible for any remaining debt left on each one as individuals.
The lawyer asked me what would keep the subscribers they sell from turning around and coming right back to me regardless if I was with this company or went on my own, and quite frankly, there isn't anything preventing that. If that happens they have to pay back the money in proportion to the purchaser if any subscriptions are lost over a certain amount of time.

The best way might be to pay them back their money with interest and have them consider it a business loan, which is really what it was in principle anyway.