My investor wanted to partner up instead of just investing, he hasn't met any of obligations as a partner and now I'm stuck with just 50% of my company. We didn't write up a contract so I only have a verbal (email) agreement. He wanted me to pay back the investment money if the startup didn't work.
What should I do? I can't pay back the investment (although I'd love to).
This sounds as a deja vu to me. I have been in a similar situation back in 2000, we could only solve the issue thanks to a good mediator. However every situation is different and hence your route to a solution might be different. It also depends where you are in the world that defines how an email and/or verbal agreement might be a sufficient ground for legal actions. I am not a lawyer and can not judge that.
My best answer for you is "Maybe you can turn it around by having a new partner buy him out."
I was also in this situation in 2005 and my partner threatened a lawsuit, but we did have a written contract by an attorney. We never had the lawsuit since the contract stipulated that neither party can commence a lawsuit.
My point is that a verbal agreement never works. It is a "he said she said" situation and the "other" party always think they are right and you are wrong. Plus, even if the other party knows they are wrong, they will not admit it. Verbal agreements just never work out.
Most of my business friends have paid under $500 for their contracts since the attorney already has a boiler plate. That amount will save you thousands in legal fees later.
In YOUR situation, I would firmly explain in a nice professional way, that he did not hold up his obligations and that you would only pay him back the investment if he met his obligations. Since he did not, you owe him nothing. If that fails, you may want to ask him why he did not meet his obligations and explain that you do not have the investment.
If all that fails, see my first sentence and tell him that you want a year to find a new partner to buy him out. Even smarter, do not even put a date on it. When you find a new partner, you will find one, even if it takes over one year.
Bruce
A. What country are you in
B. did you verbally agree to pay him back
C. Is company generating income? Profitable?
Hi, I am an Israeli lawyer and therefore the following does not necessarily comply with the American legislation. In Israel, you don't need a signed contract in order to have an obligating agreement. Oral consent (in mist cases) is enough and when you have a proof in writhing (such as emails) it's even better.
What was the oral agreement between you two? Did you issue him shares? If you did and he is a partner he bears the risks as well as the advantages so it doesn't make sense to ask the money back. In addition, how did you write the money in the company's books? If it was not written as a loan you might have a better case claiming the money was never meant to be paid back.
As a practical advice, try to build a mechanism that will "free" you from him. Maybe pay in installments, decide you will pay back from revenues or as a percentage from a further investment etc. You are welcome to give me a call and we can think together of creative ideas to offer him from the business point of you rather than the legal one. Good luck!
Can't speak to the legal standing of the e-mail in regards to the initiation of a contract, but from my understanding it sounds like you would be in the clear. Dealing with a partner who "isn't carrying his weight" is always a difficult topic, particularly when you are talking about a 2-person partnership. Hard to make a clear judgment based on the information provided, but your partner should understand the risks involved with investing and co-founding a start-up. Unless the wording of your agreement was overtly biased towards your partner, I find it hard to believe your partner would be able to re-coup his initial investment.
I am a startup lawyer and mediator, and my advice in situations where there is not an agreement in place that adequately resolves a conflict is to recommend mediation. If "kitchen table" negotiations have failed to resolve the issue, before you spend tens of thousands of dollars on litigation, the best route is to attempt face-to-face mediation with a neutral facilitator. It is usually less expensive than litigation and generally stays more positive and has a more mutually agreeable outcome. Feel free to contact me if you want more background on what mediation entails.
