Two business partners started a small business with an initial investment of $200k. The business was registered under a third party's name, and after a year, one partner took over management. The business incurred significant debts during this period, leading to a dispute over who is responsible for these debts.
Pain Points
- Lack of a written partnership agreement
- Unclear responsibility for business debts
- Financial loss and potential damage to personal relationships
- Legal complications due to business registration under a third party's name
Two years ago my friend and I started a small business. We invested around $200k between us. At the beginning we were worried about paperwork and legal responsibilities, so we asked my brother to register the business under his name and ABN. Everything was under his name but the investment was ours. The shop only operates about 4 hours each night. For the first 6 months I worked there full-time. Later I got a morning job and would come to the shop in the evening. Sometimes I was about an hour late. My partner started complaining that I wasn’t focusing enough on the business. After about a year, we agreed that he would run the shop himself. The agreement was simple: he would manage everything and pay me $5,000 per month. At that time the shop was doing well and we were making around $8k profit monthly. This continued for about 2 years. Recently he told me he can’t run the shop anymore. I said I would take it back and run it again and continue paying him the same $5k monthly like he paid me. But when I came back to the business I discovered around $80,000 in debts (suppliers, rent, wages, etc.). Many suppliers are asking for at least $3k per week to clear overdue balances. Now he says he worked hard for two years and I just took the monthly money, so I should pay all the debts. I never agreed to that and I didn’t even know about these debts while he was running the shop. Important details: \- There is no written partnership agreement. \- The business is registered under my brother’s name and ABN. \- When we first ran the shop it was doing $40k–$45k revenue monthly. \- Right now the shop is running well again, but the debts remain. I’m confused about what is fair here. Am I responsible for these debts even though he was running the business and never told me about them? Any advice would really help.