This is a tough dilemma and a great example of why you really need to be very selective when choosing a business partner.

First off, make sure that going forward you keep detailed records of business transactions and separate your business banking from your personal banking. This will reduce the likelihood that your personal assets are put at risk should you have any business liabilities.

Based on the information you have provided, which is limited, it appears as though your business partner's lawsuit is without merit but I don't have access to the lawsuit. You should definitely have a lawyer review the lawsuit.

I'm wondering if there is anything you missed in the lawsuit because filing a lawsuit when $3,000 is at stake can get expensive. It doesn't appear to make much sense with all the upfront legal fees that would be involved for your partner.

Are you sure there was legal documentation that you signed in which he would be compensated under all circumstances? It is also possible that he may believe you breached your fiduciary duty as the CEO of the company but again it is hard for me to tell without reviewing the lawsuit.

I will say though that if the business just failed pure and simple, then it is likely that your business partner really doesn't have much of a case. When one starts a business, they do so with the knowledge of the risk of failure.

As I said before, make sure you have a lawyer look at the lawsuit to better understand whether the case has merit--even if it costs a few dollars. Good luck!