Are verbal agreements binding prior to registering as an LLC? What if one partner fails to perform?

Question

We had agreed to be equal partners to a start up business, I have provided the intitial start up funding and the other party was to procure the operating capital. He has not been able to honor his end of the agreement. I have found a partner that can provide the operating capital and I have offered the other person 10% ownership as a result. He is now acting immaturely and threatening to "sabotage" the business. What is my recourse?

Answer 1

Okay, it is lawyer time.

What you want is a "fish or cut bait" letter stating the terms of your oral agreement and giving him x days to comply.  The letter should state that if is not able to comply the agreement is null and void.

Stop and think of how he can sabotage the business.  I suspect that unless he has unique skills and/or business contacts that he really can't do your venture any harm.  So, unless you need him to make your business succeed dump him and go forward.  

Hope this helps

Jerry-the-bookkeeper

Answer 2

With rare exception (examples being the sale of  real estate or a motor vehicle), verbal contracts are as binding on the parties as a written one.

Having said that, you have a huge proof problem.  You have to be able to prove the existence of a verbal contract as well as the specific terms of that contract.  If the other party asserts that no verbal contract was entered into or even if that party claims different terms, you will likely not be able to prove the existence of a valid enforceable contract.

That's why contracts are reduced to writing.  That written contract is the proof.