Some basic facts about what happened so far:
Or is there a better way out here? Any advice?
- 3 business partners own a small business together for a number years
- business never did well, though finally went slightly above 0 in the recent years and started paying off its huge loan
- one business partner, let's call him A, was never very active, and though the issue was brought up many times, never tried to improve
- A moves out of state (on an agreement that he'd launch a new location of the business) and starts to contribute even less time and effort (and never succeeds in bringing in even one client, or even an inquiry with the new location)
- the other two notify A that they don't want to work with him anymore, and he gets pretty upset (the guy has an enormous ego and cannot fathom possibly being in the wrong)
- the two sides discuss buyout, but cannot agree on company valuation (A is demanding unreasonable amounts); A disagrees that he didn't put in enough work and actively avoids the subject
- almost a year later, after a lot of back and forth, the 2 partners remaining in town and running the business decide to officially expel A and send him a notice (there's an expulsion clause in our partnership agreement that allows to get rid of a member due to conduct that causes material harm... clearly his inaction is completely irresponsible, which means that we could never rely on him to get important things done in a timely manner or at all.. plus all the mental anguish on our end dealing with the situation..)
- A gets very mad, hires a lawyer who sends an angry letter, threatens to sue
- A starts to claim that he's been the manager of the company all along (which is not how the company ever functioned), accuse us of breaching the original agreement (which is very bad by the way, and is missing a lot of important info) and saying that we never gave him member distributions that he's apparently owed (even though the company never made enough money and needed a backup fund from the owners to stay afloat, and even though he never did enough work to deserve any kind of a payout... plus if he's claiming to be the sole manager, why doesn't he just go and withdraw whatever he thinks he's owed?! I suppose some small part of his brain realizes that this would be theft).
- A starts to mainly attack one of the two remaining guys (not me) thinking that he's the instigator of the conflict (which is not true, we are both in agreement that A hasn't been doing his part). He's trying to claim that he (let's call him H) hasn't been doing his share (blatantly not true, because H has insane levels of productivity) and that he's been filing the taxes wrong (nothing wrong with the taxes, as confirmed by our accountant and lawyer, plus we have an agreement signed by all 3 partners that describes exactly what H is doing).
- we suggest non-binding arbitration, to which A replies that he wants binding arbitration
- we suggest getting a formal valuation of the business (which we've been avoiding up till now since it's expensive, but arbitration + lawyer fees would be more expensive, and we are talking about a business that's basically worth less than $0)
- A stops listening to his lawyer (the guy basically told our lawyer that A seems to be crazy) and is insisting on getting his own independent valuation, since he "doesn't trust us to provide correct financial information" to whoever's doing the valuation. First of, he's always had and still has full access to our Quickbooks and all financial info (we're not hiding anything!) and can easily verify the info. Second, with two valuations we'd still not be any closer to resolution, because most likely the numbers will be a bit different. A is pretty well-connected by the way, and I suspect that he might have a friend who does valuations and would be willing to give him a dishonest one to favor his crazy view of our business.
- The company has been doing worse lately. H and I have been spending so much time and energy with this arbitration/valuation/lawyer nonsense, that we have very little resources left for the company. At this point, we cannot afford rent, cannot continue paying off the loan, have to delay the payroll, etc..
- My work is almost completely inside the company, and since I've been learning a completely new skill-set lately to go into a different field (this one is clearly not financially feasible) and working fewer hours, my personal finances are in a terrible shape. I owe $ to the IRS, credit cards, cannot deposit my own paychecks in time because the company's account is often close to 0, definitely cannot afford valuation, arbitration, and lawyer fees..
- H's finances are also not great, and he's unable to loan me any $.
- My parents recently loaned me a sizable chunk of cash to try to pay my estimated tax, and I'm very hesitant to ask them or anyone else for more, since I have no idea how soon I'd be able to pay all this off. Would you guys say it's ethical to ask for more loans when you cannot pay off the existing ones? I'm having a very hard time with this part...
Or is there a better way out here? Any advice?