What Can I Do When an Investor Freezes Funds?
Opinions expressed by Entrepreneur contributors are their own.Luckily for you, this leopard showed his spots early in the game. You may be right -- that your partner has violated certain provisions of your operating agreement. Putting in all the money and then withdrawing it all does not seem like a sound business practice to me.
The fact remains, though, that you didn’t put any money into the venture. Unless you contributed vast amounts of tangible intellectual property (customer lists, marketing materials, etc.), you could easily leave this venture and start another one right away because you’re the one with the know-how.
It would be best to consult with a business attorney in your area to figure out your options and how to make sure your partner’s misdeeds don’t come back to haunt you. In the meantime, here are a few other things to consider:
1. Review all contracts to make sure he/she didn’t offer any personal guaranties and to see what long-term obligations the company entered into.
2. Review the operating agreement to see if there are any prohibitions about soliciting clients or vendors.
3. Have a frank discussion with the financial partner about the possibility of dissolving the business, closing accounts and how clients will be served going forward.