I recently answered a question on Avvo® that I thought might have value to an audience beyond the asked. The person making the inquiry started a small business with his sister seven (7) years ago. Although he said that the company is “under” his name, the company leased its retail space under his sister’s name. Further, she contributed to the company’s capitalization and provided a year’s worth of some form of service to the company. Now his sister is demanding sixty thousand dollars ($60,000) plus an additional thousand dollars ($1,000.00) per month.
The level of information you provide is an insufficient basis for meaningful observations. A pair of concepts will be discussed when you share data with a lawyer during a consultation – law and equity. Stated differently, what will matter is what are the “rules,” and what is “fair.” The core questions here, in lay terms, are (a) what was agreed upon between your sister, (b) were enforceable promises made and relied upon or not, and (c) are there any technical/legal reasons that what would otherwise be an enforceable promise might lose its significance.
Avoid sharing extensive facts (or your position, beliefs, memories, etc., with respect to those facts) in this completely public forum. Doing so would be like dropping your drawers on camera when you appear on the “jumbo-tron” screen at a sports game in a stadium. Your private affairs should only be shared with others at an appropriate time, and in the right place. In this case, since the business at hand could have an immense impact on your livelihood, the context for your disclosures about what could be a contentious legal issue should be a consultation with a lawyer.
Sometimes the best thing a competent lawyer can do is answer a question with a question. Here are a few relevant things that you will discuss with a competent attorney if you want an “answer.” Since the best legal advice is NEVER based solely upon impressions that can be formed during an initial consultation, you should not expect to get anything worth relying upon in the context of a free hour. Hire the right attorney and get an informed opinion based upon complete facts, documents
1. What do you mean when you say that your sister is “asking” you for this lump sum and these continuing payments? What exactly did she say or do to prompt you to want to know and/or provide her with an answer?
2. What is the basis for your sister’s request? There is likely a reason that she is making this particular claim. Did you have any understandings with her, oral or written that she is now seeking to enforce? If so, (a) what was the basis of those understandings, (b) what was the intended significance of those understandings, (c) did you make any kind of record of those understandings (if so, what kind of record, if not, are there any “witnesses” to those understandings) , (d) what sorts of things (if any) did you or she do in reliance upon those understandings, and (e) what benefit or burden did the business experience as a result of those understandings.
3. When you say the “risk of breaking the lease,” what do you mean?
4. What exactly was your sister’s one year “contribution” to the company? Did she have a contract (or any understanding) with the company (or with you) related to that contribution?
5. What type of entity is your business? How is that entity organized and operated? Are there clear records that document your organization and/or operations? Who (apart from you) has first hand knowledge about these aspects of the business?
This is not all that you will discuss, but it’s a good glimpse for you into what should be discussed, at least in part, during your initial consultation with a lawyer. There are different kinds of business arrangements that might be appropriate between you and your lawyer. The kind of contract that you establish with your lawyer will likely be determined by what your sister is doing (or not doing) to pursue a claim against you.