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Made this mistake in my first business that I wanted to exit from. This should have been spelled out in the operating agreement in the event of the company dissolving or if one member wanted to exit early. Probably also should have been discussed with the investors upfront. Hindsight is 20/20 but now you know.
As far as paying things back for me it depends on the amounts here and how much you’d like to preserve this relationship. We talking thousands, ten thousands, 100 thousands? If it’s not a life changing amount of money and you’d like to keep this relationship I’d explore meeting him in the middle somewhere. This is 100% one of those things that will destroy a relationship sadly. If it’s not feasible now to pay them back then an investment like this is a risky one and his investors should have known the risk upfront that they might not get their money back.
I hear ya. It’s one of the reasons I warn everyone to be really careful about starting a business with someone else. It’s a kin to a marriage and sometimes just as messy to get out of. You’ll keep this experience for further down the road and will be better off for it in time.
It sounds like your business partner was BS’ing his family that they would get the investment back if things went south. Or, there was some side “loan” agreement he made with them without you knowing.
Would be helpful if your agreement clearly states that investments are at-risk capital with no obligation for repayment of business fails.
Would be extra helpful if his family members are named.
I guess the only fringe risk would be that if you and this guy set up a general partnership (since he can bind the business in dealings without your direct knowledge unless your operating contract clearly states both have to agree in writing) and his family reasonably believed that your business partner had the authority to enter into agreements then his family can argue your business owes them.
Regardless, this business partner is gross. Good thing to have people like that exit your life.
Thankfully the agreement does protect to everything you've listed above, and they are all individually named / have their own contracts.
Legally, I'm in the clear - thank you for your advice!
For further context, I know this is a stupid request from a stupid business partner - I think I'm more so so taken stunned by the idea that he wants me to help him maintain his personal relationships that I'm asking what frankly is an incredibly stupid question.
Investment has risks, even if you sold them the moon. He needs to be an adult and own up to his friends and family members who he talked into investing. It's all in the agreements it sounds like. He just doesn't want to deal with any fallout. With that being said, I don't know what the other obligations are but instead of closing it you should offer to sell it to them or someone else so you can recoup your investment. If you close, no one can win.
Did you or the investors sign any contracts in the event the business failed (as many do)? Ideally you can just reference those documents rather than having a discussion.
Still worth sharing. It’s helpful for others to know this kind of thing happens.
Do your investors have any equity, or is it all under a debt instrument. They could come after the enterprise at the asset selloff.
Depending on who these people are, not paying them could harm your reputation much further than just them. Future investors in a new company may ask for references from your past investors
We don't have much to sell off, he's asking me to personally reimburse people I have no relationship with for the sake of his relationships, which is why it's so funny.
Not to mention I put in roughly half of what the investors did by myself and am writing it off - he wants me to pay back investors on top of my personal investment because of "ethics and valuing relationships".
This is just one huge lesson into going into business with the wrong people, thankfully the cost I put in is something I can comfortably absorb and I can just laugh about the rest of it.