Compensation for Transfer of Business to One Partner – part I | Beit Din Eretz Hemda - Gazit | Beit Midrash

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Case: The plaintiff (=pl) and the defendant (=def) started a business that provides therapy for children. According to their agreement, def, who has a similar center elsewhere, was responsible for the finances and infrastructure (e.g., payment from parents and kupat cholim, paying workers, insurance, purchases, upkeep). Pl was to serve as a therapist, be in charge of day-to-day operations, interact with parents and workers, and plan events. The business and grounds rental were in def’s name. Pl and def were supposed to get small salaries and then split profits equally after reaching "the point of balance." After three years of receiving less salary than discussed and no profits, despite the growth of the operations, pl started complaining about compensation, and was unsatisfied with the explanations and that she/ her husband had limited access to records that would show the amount of profit. Pl and def reached a level of acrimony that made it difficult to continue the partnership, and each side wanted the business.

Ruling: [First, beit din decided about how to end the partnership. In later installments, we will see about the basis for compensation for the one who lost his part in the business.]

P'ninat Mishpat (814)

Beit Din Eretz Hemda - Gazit

733 - Responsibility for a Replaced Water Heating System

734 - Compensation for Transfer of Business to One Partner – part I

735 - Compensation for Transfer of Business to One Partner – part II

While each side wanted the business and argued that it was rightfully theirs, def demanded guarantees that pl would not compete in the future and was disturbed by the prospect of pl and her husband, who lived near the center and many clients’ families, would be a "thorn in def’s side." It became clear it was more workable for pl to get the center, whereas def would continue with his own center and receive significant compensation from pl. Def reluctantly agreed. Following are provisions of beit din’s decision (on March 22, 2018) regarding separation.

The date of transferring operations is May 1, 2018. Def will receive income and pay pl and third parties that which relates to operations until then if requests for payment were received by May 7. Def will pay by May 31.

Both sides may petition beit din if they believe the other side is not keeping this agreement, and beit din will hold a hearing soon thereafter to rule on it. Pl is responsible for damage payments that relate to activity before May 1 (even if the claim comes in later).

During pl’s first three months of operation of the business, she will pay 2,500 NIS per month as a down payment on the compensation, after which, beit din will decide about continuing such payment. If pl will claim that def is not cooperating properly in transferring operations, she may appeal to stop these payments. During this time, pl can continue using the center’s name and remaining infrastructure. By the end of July, pl will change the center’s name and create new relationships with insurers, kupot cholim, workers, etc., instead of def.

Def can take any movable object from the center, after two weeks’ warning, or leave things of value. These decisions will be reflected in beit din’s final ruling.

Def may open up a competing business as long as it is not within the present municipal boundaries.

P'ninat Mishpat