You don't have to sign a contract for a counterparty to claim that a contract exists; worse still, your partner can claim, even the absence of a paper contract, that there are fiduciary duties you owe to each other. It helps you that you've never received consideration from your partner, but I doubt it helps so much that he can't take you to court out of spite.
This comment makes no sense. I'm an employer. I assure you, you do not need to offer health benefits, pay unemployment insurance, or even pay on a regular schedule for someone to be classified your "employee"; having seen unemployment insurance SNAFUs firsthand, let me assure you that "jail" doesn't enter the picture here at all --- they simply send you a bill.
I think tptacek is correct concerning the legal issues here. In any case, I didn't say the "friend" would prevail in his claim that the OP was an employee of his LLC, nor that he wouldn't suffer unintended consequences as a result of making the claim.
I'm sure that if you refuse to pay when the state government escalates from reminder notice to nastygram to series of phone calls all the way to "takes you to court", and you do something that indicates to a judge that you were overtly trying to shirk paying, then yes, you could go to jail.
The point is that it's not relevant to the situation at hand, because 10 months before that could ever happen, the "employer" is going to get a notice saying they owe some trivial amount of money, and they're simply going to pay it to go away. You would have to be made of stupid to end up in jail over employment taxes.
Note that you're replying both to a lawyer (in dc's case) and to someone who's dealt with this exact situation (in my case); you may want bigger guns here than a pay-per-word Demand Media article.
If you are an employer employing employees, you have to pay your share of Federal and State taxes on their behalf, including FICA and unemployment insurance. Failure to do so will result in penalties that may include jail time. (http://answers.google.com/answers/threadview/id/775884.html). Back to the issue, if the "friend" insists that the op was an employee, he would have been liable for said taxes. Thus he would be incriminating himself. You don't have to be a lawyer to figure that out.
We've gone back and forth many times. It's hard to decide on equity when circumstances change. Also, I recently discovered that we are at pretty much at step 0 in terms of business/customer development. I thought my co-founder (who never really tells me what he is working on) had made progress but I found out recently that I'm expected to jump right into sales with him once I'm available to do so.
I thought my co-founder (who never really tells me what he is working on) had made progress
Discovery, will ferret this out in court and without a patent, who came up with the idea != an equitable consideration in the eyes of the court. If he truly has not done any or little work you may walk away with a larger stake than he is looking for. Exploitation is frowned upon in most courts.
Sounds like you and him have never worked together before. There is an entire lack of communication, and I think your ignorance or lack of persistence is partially to blame.
>> Why the split was never declared before you started working together?
> We've gone back and forth many times. It's hard to decide on equity when circumstances change.
No it's not, it's easy.
I've always felt that two or more people involved in a business like this should share equity in relation to the number of hours they have actually worked, adjusted for any cash they have invested in the business.
For example if neither of you have invested cash but your partner has worked 400 hours and you've worked 1200 hours then the split is 25/75 in your favor. Simple!
The split changes as the ratio of hours changes or as the partner's cash investment changes, but the basic agreement here is that each partner's time and/or money is equally as valuable as that of the other partners. If one partner stops working completely his share will continue to shrink as the other partners continue to increase their relative shares by working more and more hours.
This IMO is "fair" because no matter what, it's the hours the two of you have worked that determines who gets the most, with cash investment considered too of course.
I told my brother this years ago when I had already invested 700 hours in a new business, as well as five thousand dollars in cash. He saw the potential of my venture and he wanted to jump in with a 50/50 deal immediately. I said no, I've invested 700 X $50 = $35,000 in labor and $5000 in cash so I'm ahead of you by $40,000 -- so here's how we will do it:
My share right now is 100% and yours is 0% but you have the right to invest cash or time (valued at $50 per hour) in order to catch up to me. When you've caught up by investing as much time and/or money as me then we will be equal partners, but until then we will use this sharing ratio to determine who owns how much of the business.
It's a good system that rewards partners for their actual contributions instead of some pre-conceived notion of how much each one might be worth relative to the others.
