I’ve found myself in a very awkward business and personal situation. My business partner “Elliot” was the high school big man on campus in the 80’s. All the women loved him and all the men wanted to be him. He was four years older then me and I looked up to him. He, his brothers and sisters and parents have been like family to me and mine for over 35-years.
A few years ago, Elliot found himself in a dead end job that he hated and I was self-employed but in desperate need of cash. In fact, I was so desperate that without a cash infusion, I may have gone out of business. I agreed to sell Elliott an unspecified portion of my corporation (annual sales of $ 4,000,000) in exchange for $ 125,000.00 in cash. Because of our history and complete trust in one another, the details would work themselves out in the future, or so we thought. Furthermore, even though Elliot had no experience in the field that we specialize in, I also agreed to provide Elliott with a staff position that would start out paying him the same salary as the job he was leaving ($ 64,000/year). I “assumed” that Elliot would be energized by this new opportunity and work diligently to contribute as quickly as possible. Finally, I further agreed to let Elliot take hunting season off before he started work (about six weeks). This was always a dream for him and I had no issue with it.
Elliot has now been with the company for 36-months. His salary of $ 64K began paying Sept. 1st of 2013. He was supposed to report for work October 15th 2013 (after hunting season). However, Elliott didn’t just take off hunting season, he didn’t show up for work for 24-months. In utter befuddlement, as well as wanting to avoid a confrontation with my high school hero and family friend, I kept paying him his salary. However, by the time he decided to start coming in sporadically, he had already been “paid back” $ 128,000 of the $ 125,000 buy-in. When I say he decided to report to the office, I don’t mean that he decided to report for work. Rather, Elliot goes into his office and, for the most part, simply browses the internet. To this day, Elliot may come in some days at 1:00 and leave at 5:00 and other days, like yesterday, he’ll tell me that he needs to take the following day off because he has to mow the lawn and change the oil in his car (he’ll tell me this on a Monday when he could have done all of these things the previous Saturday and Sunday). Elliot taking days off has no real effect on the company anyway as he’s declined to actually do anything productive during his time here. Yes, he’ll pick up an occasional check, loan the company more money here and there (charging interest) or he’ll run the occasional errand. Time and time again, I’ve tried to nudge him towards filling real company needs and offering him training, hoping that he would grab the ring and go for it. Despite this, Elliot always ends up right back up where he started, at home or browsing the internet on his office PC. I think that, in his mind’s eye, he’s an owner and can simply come and go as he pleases.
In fact, he’s came to me several times wanting his salary increased.
For the record, in addition to his salary, the company is also making a $ 1,000 a month payments towards Elliot’s vehicle, contributes 14% to his 401K and pays for his gas to and from the office via a fuel charge card. As I’ve previously stated, Elliot also charges interest for any “growth” loans that he’s made to the company as well.
I’ve finally had enough but given our families histories and the fact that I love him like a big brother, I want to handle this morally and with kindness (if possible), but the facts remain:
1. Even if Elliot showed up for work and was driven, until he becomes fluent in our field, he’s drastically overpaid.
2. He has shown no interest in learning our field.
3. In the three years since Elliot “bought-in”, there have been 6,240 standard work hours. I would estimate that Elliot has actually worked approximately 60 of these hours.
Elliot may have thought that the $ 125,000 buy-in was actually the purchasing a very early retirement????
Elliot’s name is not on any corporate documents, nor was there any type of formal stock transfer. Elliot gave the company $ 125,000 and the company gave Elliot $ 128,000 before he decided to start making sporadic visits to the office. The company then gave him another $ 40,000 before he decided to even show up for his first 20-hour week (once again, mostly just sitting in his office on the internet).
Given the above, I’m inclined to not grant Elliot any stock and further, tell him that if he doesn’t start contributing daily and with earnest, he will soon be looking for a job as well.
I’m aware of how dysfunctional this is. I’m also well aware that I should have put an end to this long ago. However, I was and am very grateful to Elliot for saving my business in a time of great need.
Finally, during the first two years of Elliot’s tenure, the company hasn’t turned a profit, rather we’ve been operating at breakeven (regarding year end owner’s draw/profit sharing). This year, we will turn a significant profit.
I would value your feedback regarding what my next actions should be.
A few years ago, Elliot found himself in a dead end job that he hated and I was self-employed but in desperate need of cash. In fact, I was so desperate that without a cash infusion, I may have gone out of business. I agreed to sell Elliott an unspecified portion of my corporation (annual sales of $ 4,000,000) in exchange for $ 125,000.00 in cash. Because of our history and complete trust in one another, the details would work themselves out in the future, or so we thought. Furthermore, even though Elliot had no experience in the field that we specialize in, I also agreed to provide Elliott with a staff position that would start out paying him the same salary as the job he was leaving ($ 64,000/year). I “assumed” that Elliot would be energized by this new opportunity and work diligently to contribute as quickly as possible. Finally, I further agreed to let Elliot take hunting season off before he started work (about six weeks). This was always a dream for him and I had no issue with it.
Elliot has now been with the company for 36-months. His salary of $ 64K began paying Sept. 1st of 2013. He was supposed to report for work October 15th 2013 (after hunting season). However, Elliott didn’t just take off hunting season, he didn’t show up for work for 24-months. In utter befuddlement, as well as wanting to avoid a confrontation with my high school hero and family friend, I kept paying him his salary. However, by the time he decided to start coming in sporadically, he had already been “paid back” $ 128,000 of the $ 125,000 buy-in. When I say he decided to report to the office, I don’t mean that he decided to report for work. Rather, Elliot goes into his office and, for the most part, simply browses the internet. To this day, Elliot may come in some days at 1:00 and leave at 5:00 and other days, like yesterday, he’ll tell me that he needs to take the following day off because he has to mow the lawn and change the oil in his car (he’ll tell me this on a Monday when he could have done all of these things the previous Saturday and Sunday). Elliot taking days off has no real effect on the company anyway as he’s declined to actually do anything productive during his time here. Yes, he’ll pick up an occasional check, loan the company more money here and there (charging interest) or he’ll run the occasional errand. Time and time again, I’ve tried to nudge him towards filling real company needs and offering him training, hoping that he would grab the ring and go for it. Despite this, Elliot always ends up right back up where he started, at home or browsing the internet on his office PC. I think that, in his mind’s eye, he’s an owner and can simply come and go as he pleases.
In fact, he’s came to me several times wanting his salary increased.
For the record, in addition to his salary, the company is also making a $ 1,000 a month payments towards Elliot’s vehicle, contributes 14% to his 401K and pays for his gas to and from the office via a fuel charge card. As I’ve previously stated, Elliot also charges interest for any “growth” loans that he’s made to the company as well.
I’ve finally had enough but given our families histories and the fact that I love him like a big brother, I want to handle this morally and with kindness (if possible), but the facts remain:
1. Even if Elliot showed up for work and was driven, until he becomes fluent in our field, he’s drastically overpaid.
2. He has shown no interest in learning our field.
3. In the three years since Elliot “bought-in”, there have been 6,240 standard work hours. I would estimate that Elliot has actually worked approximately 60 of these hours.
Elliot may have thought that the $ 125,000 buy-in was actually the purchasing a very early retirement????
Elliot’s name is not on any corporate documents, nor was there any type of formal stock transfer. Elliot gave the company $ 125,000 and the company gave Elliot $ 128,000 before he decided to start making sporadic visits to the office. The company then gave him another $ 40,000 before he decided to even show up for his first 20-hour week (once again, mostly just sitting in his office on the internet).
Given the above, I’m inclined to not grant Elliot any stock and further, tell him that if he doesn’t start contributing daily and with earnest, he will soon be looking for a job as well.
I’m aware of how dysfunctional this is. I’m also well aware that I should have put an end to this long ago. However, I was and am very grateful to Elliot for saving my business in a time of great need.
Finally, during the first two years of Elliot’s tenure, the company hasn’t turned a profit, rather we’ve been operating at breakeven (regarding year end owner’s draw/profit sharing). This year, we will turn a significant profit.
I would value your feedback regarding what my next actions should be.
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