If a friend and I created an LLC without a partnership agreement in place, what are my obligations/rights with regards to being reimbursed for monies spent and time invested?

We are both listed as members with equal ownership (50/50). At the outset, the verbal agreement was that she would provide the seed funding for the project but this was never done and I have covered almost all expenses with my personal credit cards. I’ve also spent more than a year out of work and primarily focused on developing this business (so I’ve given up a sizable income, as well as, used my personal savings to cover expenses). Due to shifting priorities, I have decided to walk away but she wants to continue and expects me to hand everything over to her.

Asked on August 7, 2015 under Business Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

Without a written agreement, if a partner simply "walks away" or quits, she is not entitled to anything--only if there is a written agreement entitling her to compensation if she leaves, would she get anything. (This why partnerships should always have buy out agreements.) Similarly, if you did not have some agreement showing that monies that you paid were loans to be repaid, you would not be entitled to repatment--the money would be considered an investment (no reimbursement) not a loan. What you can try doing is this: if there are 2 partners, you have 50% ownership and control. You can tell your partner that you want the partnership dissolved and any assets, money in accounts, etc. split between you. If she will not agree, or then offer to buy you out or pay you something, you could bring a legal action in chancery court asking the court to break the deadlock between partners and order the dissolution and distribution of assets.

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

Without a written agreement, if a partner simply "walks away" or quits, she is not entitled to anything--only if there is a written agreement entitling her to compensation if she leaves, would she get anything. (This why partnerships should always have buy out agreements.) Similarly, if you did not have some agreement showing that monies that you paid were loans to be repaid, you would not be entitled to repatment--the money would be considered an investment (no reimbursement) not a loan. What you can try doing is this: if there are 2 partners, you have 50% ownership and control. You can tell your partner that you want the partnership dissolved and any assets, money in accounts, etc. split between you. If she will not agree, or then offer to buy you out or pay you something, you could bring a legal action in chancery court asking the court to break the deadlock between partners and order the dissolution and distribution of assets.


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