I obtained a DBA with my brother in law to form a drywall business. I found out that he was doing some things that weren’t right by me (keeping funds for his own use vs paying the material bill with the funds).
I want to be rid of him. He is forming a bad name for me with less than perfect work, not to mention the embezzlement! How do I remove my name from a business partnership / DBA and get my own? I would like to become an LLC.
Do you two have a written partnership agreement, or are you simply doing business together?
Assuming you have a written partnership agreement, you can follow the procedures therein.
Otherwise, as “de-facto” business partners, you’re going to have to determine what your state’s requirement is for revoking a DBA. Some states have no dissolution requirements. You will want to notify the IRS and close the EIN account. There may also be a state registration that should be closed as well.
Remember that a DBA is just a way of officially “renaming” an already existing business entity. For sole proprietors, the DBA is “renaming” themselves. John Smith becomes XZY Dry Cleaning.
Moreover, a DBA can also be used as an official alternative name for an entity like a general partnership or corporation. For example, Jack & Jill partnership can be DBA’d to a business name like Superior Water Fetching.
You should examine the DBA filing and figure out if the filing was under your name, your brother’s name, or both names as a partnership. DBAs are typically filed with the county clerk and occasionally with the Secretary of State where the business is filed.
You’ll also want to remove your name from any bank accounts for the business and remove your business partner from access to any of your bank accounts.
You’ll also need to inform, in writing, all of the vendors you use that you will no longer transact business as a part of the partnership and that you are not liable for any orders your former partner places in “your name”.
The legal concept is called “apparent authority”. If you and your partner have held yourself out to the public as being a partnership, then if your partner orders supplies, you are going to be liable.
The only way to protect yourself is to send a letter (keep a copy for yourself) to each supplier and tell them that you have dissolved the partnership and that your former partner cannot place any orders in your name, and that he has no authority to act on your behalf and that you have withdrawn from the partnership.
That letter would destroy any expectation in a supplier’s mind that you are agreeing to be liable for these orders.
General partnerships are dangerous because if a partner goes “rogue” and starts buying things in the partnership’s name, and then doesn’t pay the suppliers, the other partner is personally liable.
If you have a big line of credit, this could be tens of thousands of dollars.
Unlike someone slipping and falling at your store, there is no insurance you can buy against a partner’s illegal activities, and this happens more often than you think.
There have been many lawsuits between and among partners–both when times are good (each wants a bigger share of the pie) and when times are bad (each points the finger at the other as the cause of the problems).