Would it be possible to re write the operating agreement and "re-assign" duties.
You would be the day to day person, with all operations and employee headaches etc., and he could be a "consultant", make his trinkets and you "buy" them to shut him up?
I would also contact all vendors and bankers to let them know that they are to deal with you. If you want to be vague in the reasoning, just say that there has been a re alignment and you are now the contact for any reason. Give them your cell phone number if need be.
As for the customers who he is upsetting, put the company policies that were agreed upon in the beginning up in a frame on the wall. That way, he can`t undermine you on that.
For the employee who came to you- Kudos. That was a tough call on his part. Your partner is doing something dirty and yucky. Not just with the money, but making the employee feel sick and queasy too. Could the employee not pay the partner what`s the worst that could happen? Is there a way to prove to the partner how much money wasn`t made? If it was made and the employee does the kickback, make sure that the employee asks the partner for his pertinent information on a W-9 to be able to issue a 1099 at the end of the year for the IRS` records. (before any money is paid out)
Good luck. Call an attorney. Call the banks. Call the vendors. Happy hour at 5!
There is one thing you must do, and you must do it immediately.
RUN, do not walk, RUN to an attorney IMMEDIATELY for help in removing this "partner" from your business as quickly and permanently as possible.
I would also strongly recommend you develop a specific plan to manage the public and commercial fallout from this. You will be tainted with your customers from allowing him to get this far if you do not actively prepare a disaster recovery plan. Your attorney may be able to either help with this, or direct you to a PR firm who can help you turn this into a demonstration of proactive integrity, rather than a reactive response to something you should have nipped in the bud long ago.
Especially if your business is taking off, you need to slam down hard on this risk without any delay, hesitation or compassion for your ex-partner.
As I read your story I felt like you were telling my own story. I`ve had several businesses all successful and several that were not. The ones that were not all had partners. I had one partner just like yours - he might even be the same guy!!!
My advise is RUN from him as fast as possible as quickly as possible. Having a 50/50 partner is worse than a bad marriage. My lawyew told me to pick my next partner more carefully than a wife.
You have to get a divorce. Catch him with his hand in the cookie jar. Set it and catch him. Then give him your alternatives. You buy me for X or I will buy you for X. Either way we are done. If that does not work you will disolve the company. You must be serious and be willing to chaulk it up as experience and foillow through.
The very best advise is get a lawyer and perhaps they can be the mediator for this divorce. Then never ever again have partner.
I sympathize with you in what you are going thru. It is difficult to disassociate yourself with your dream I`m sure. However It is my halucination that you should allow common sense to prevail.
I am sensing that you are not a confrontational type, and your partner is taking advantage of that. From what you describe your partner seems to be blatantly deliberately trying to destroy your company. Envy is a terrible emotion, and your partner may have a bad case since in his eyes he had nothing to contribute.
I realize you have put two years of your blood, sweat, and tears into this however to avoid a costly battle, I would suggest you notify your partner, and your customers that you will be taking a leave from the business, and start over. Once you get your ducks in a row dissolve your present company 50/50 if there is anything left and continue your new venture on your own.
You will find that if you have your customers respect, they will follow you.
May you be blessed with a solution to your problem, and much properity.
Hum... with all these horror stories, it`s making me think twice about getting a partner on board for my business. So any advice on what I can do from the legal/contract aspect in preventing these types of problem from happening in the first place? Do a C corp? S corp? become a lawyer? :D
I could be wrong but isn`t this extortion?
As other people have said RUN to a lawyer.