When Your Business Partner Goes to Jail

Posted on April 6, 2012 in Planning & Advisors

I’m seeing many pixels devoted to the downfall of Charles Patton, a partner and music producer for rapper Lupe Fiasco’s “1st and 15th” record label.  I have to confess to not being a devotee of rap music, or even having heard of Lupe Fiasco (or Charles Patton) before the reports started coming in . . . but their situation raises eye-opening ones from a business partnership perspective.

Here’s the summary:  A couple of weeks ago, Patton was sentenced to 44 years in prison, as a result of his May 2007 conviction for drug dealing.  According to reports, Patton was caught with, no, not a dime bag of pot, but with 6 kilos of heroin, having a street value of about $1 million.   Ouch!  Although Fiasco was never charged, he was at Patton’s home at the time of Patton’s arrest.  However, prosecutors did not present any evidence showing a between the drug dealing and the 1st & 15th record label.

So here’s my question: what would you do if your business partner were convicted of a crime unrelated to the business?  Does your partnership/ownership agreement give you the option to buy him or her out?  if not, do you want to stay in business with a convicted felon?  What will this do for your company’s reputation?  And how productive a member of the business will the convicted partner be from behind bars?

Here’s some food for thought.  Many ownership agreements contain an “expulsion clause.”  This gives the remaining owners an opportunity to kick out an owner who’s behaving badly.  But you have to specify the kinds of situations that qualify because they can involve penalties against the departing owner.  Definitely check with attorney for the kinds of provisions that can fairly be included:  “dresses like a dork and embarrasses the clients” probably can’t; “uses illegal drugs on the premises” probably can.

Some of the situations that concern business owners are:  the use of alcohol or prescription medication in a way that impairs the owner’s ability to function, embezzling from the company, failing to cooperate with a sexual harassment investigation, and being convicted of a felony (in any circumstances).  If your business partnership agreement doesn’t address these issues, it’s time that it did!

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