Ask HN:My former co-founder is threatening to sue me

"I dedicided yesterday asked to not to do any futher business with him and pay him for the expenses". I'm sorry, you are wrong here. He took risks. You can't just "pay him for expenses" and expect him to give up his part of a profitable business.

If this company made 4000 US$ in a week (as you say), it is worth a lot of money and you will need to negotiate with him. Offering to pay him 1000$ for his part (ie. "his expenses") is ridiculously low.

Dude, it's not worth his time to sue you for anything less than $5k. Lawyers are very expensive here.

I would just incorporate on your own, in India. Run your business as if he didn't exist. He won't do anything.

Never violate an agreement -- verbal or otherwise -- on the basis that the other guy won't sue you because of the expense. Ever heard the term "ambulance chaser"? Well, they exist in civil litigation circles as well. My company is currently being sued by an attorney working on contingency, and it sucks hard. He's even gone so far as to name all of the shareholders personally in the suit. Here's the thing that sucks the most: any time you're sued, you must defend yourself, and that costs money. The guy suing us is doing so at no cost (contingency), but we're footing the bill to defend ourselves. Because of the state he's suing us in, we can't come back after them for legal fees. So, right now we're burning through $7k-$10k a month on a bullshit lawsuit.

NEVER assume someone won't sue you. In our case, the agreement in question was signed by one partner under the representation of a completely separate corporation, without the knowledge of any of the other shareholders. It doesn't get any more far fetched than that. If we don't defend ourselves, the judgement is awarded by default and the plaintiff gains all kinds of ability to levy liens, garnish wages, and a host of other bullshit. Basically, it's like running a marathon with a ball and chain strapped to both legs. It's the last thing you need as a startup. Find a way to reach an agreement and get past it.

Not worth it now but what happens in the future if his company does well and the cofounder comes looking?

Comes looking with no contract and none of his own commitment to show? At least the Facebook case had a signed contract that could be dug out, and proofs of payment.

IANAL but a verbal agreement can be a legally binding contract.... which can be hard to prove in court.

But apparently if you have been paid for a job you agreed to do then that's considered a contract even if no documents were signed. If there are any lawyers out there please correct me.

A contract is for a fixed amount - not for an equity sharing agreement. When the initial $500 was invested, papers should have been drawn up saying, "okay, i own 50% and you own 50%". A $4000/week business is easily worth $1 milion. The guy sees that and is now trying to sneak his way in.

People often try to take credit for your success, but back away from your failures. Since OP presumably has a $1 million dollar idea, he could get a MUCH better valuation - give away 20% for $200k.

By my reading of it he made two payments of $500 dollars which were accepted (and are almost certainly traceable). It's almost certain that there are e-mails showing a business relationship between the two of them too.

It's not clear but it's not nothing either.

> Comes looking with no contract and none of his own commitment to show?

I'm not a lawyer, but I did study a little business law, especially contracts. Contrary to common belief, you don't need something in writing for an agreement to be considered a contract. See, for instance:

http://en.wikipedia.org/wiki/Implied-in-fact_contract

The transfer of the $1000 is pretty clear evidence of an agreement. Then there's records of the regular calls/chats. The partner, while maybe a jerk, has some claims of ownership here. (Also, I think he's probably less of a malicious jerk and more likely he's feeling hurt/threatened/betrayed - the threats to sue were in response to being told he's being kicked out of a business he presumably thinks he owns half of, took a risk on with his cash, and has put in some hours of his life)

ownership of what, though? As an American citizen, you can't have ownership of an Indian corporation (as a individual shareholder). You'd have to do it through a subsidiary.

Conversely, it's impossible for a Indian citizen to own individual ownership in a US company (unless it's through a company JV type arrangement, or he has a legal visa to work in the US - this is the founders dilemma that often plagues startups)

Additionally, it's near impossible to sue a foreign corporation without a US presence.

This whole situation is sticky, and the US "investor" has little leverage. One would think that if he really wanted to take 50% ownership of the company, he would have thought through all these issues - but he didn't.

Since he was the one that threatened to sue, you have to play hardball - you have to take that threat seriously, even though it might not be credible.

Rohan: Remember that any admission that equity should be given can later be used in court (if somehow, someway it ends up in a court case...but always prepare for the D-Day case)

Remember: you own the code, the servers, and the bank accounts. You control all the leverage. What has been said is done for now, but if I were you I would calculate all the hours you put into the project, and show that the $500 doesn't take you very fair.

Additionally, someone that "wants 50% of the profits for the next 2 months". Seriously, what kind of business arrangement is that?

As I said in another response, remember that he's also responsible for 50% of the costs. As managing partner, you can take on additional equity, and he'd have to match that, or risk being diluted.

> Conversely, it's impossible for a Indian citizen to own individual ownership in a US company (unless it's through a company JV type arrangement, or he has a legal visa to work in the US - this is the founders dilemma that often plagues startups)

Actually, it's easy for an Indian to have an ownership interest in a US company.

The founders problem is that US immigration law doesn't have a special case for self-employment and SE is what a startup looks like.

They make a movie about you!

In practical purposes, this isn't really going to happen. If you really wanted to be on the up and up about it, OP can just tell the guy that he's closing the venture to pursue other projects.

Presumably, he can use the business model knowledge to get a new domain, start a real company, and redo the same business model on his own.

It sounds like the US guy is really going to push him around. Sue him? How is he going to serve the papers in India? With no contract? Really don't think lawyer would take that case.

If it comes down to a bunch of IM's sent, well then it'll be case of "was this an equity investment, or was it a loan". If the OP paid him back, a strong argument could be made that it was a loan.

What you've written is quite contradictory; for example: why does he want 50% of a now defunct company?

You said that you made 6k in one week; after saying that you've been working on this start up for 3 years. Is the $4,000 the entire profit this company made over the course of those 3 years? Based on these inconsistencies, I'm finding it hard to follow your story.

To start; IANAL so YMMV.

It sounds to me like you went in with different mentalities. You were a founder; he was an investor. I realize that from your perspective, "he didn't put as much time in" as you did; however, you agreed to give him some share of the company for his monetary investment. That said, it sounds like the valuation agreed to was $6,000 when he invested and that by contributing $3,000, he would own 50% of the company.

However, if he only invested $1,000, then he actually bought only 1/6th of the company, not 1/2. My calculations say you owe him approximately $1,680 which includes returning his initial investment and the profits from a 17% share of the company (which he really does own whether you like it or not).

All that said, if he can document actual material contributions to your products, he quite likely has a legitimate claim for a higher share.

The lesson here is NEVER do business in any form of partnership without a written agreement as to the ownership levels, roles, and responsibilities of each partner.

We both were working on an ad start-up since last 3 yrs that stopped earlier this year then i was doing a side project which i launched that the side project made 6K in one week

That makes more sense then. That said; my original comments still apply.

All agreements we had were via chat and voice and not in legal sheet.

Chat/email/voice are more than sufficient to establish a contract in the US legal system. Read the introductory "elements of a contract" section from here: http://www.expertlaw.com/library/business/contract_law.html

Depends on the amount. It really depends what US STATE the man was in whether it does or not. For instance, anything 1k or up must be in writing in Georgia.

What you can do and what you should do are different things. If he's not keeping up his end of the contract, then sue him in the country the company is registered in. Don't give him time or the benefit of jurisdiction in any legal action. If you just don't like the guy, he likely still owns part of the business.

> For instance, anything 1k or up must be in writing in Georgia.

IANAL, but chat or email probably count as "in writing."

Email? Possibly. Chat? Dunno, but not very confident it would be held up. IANAL either.

It's in california

(Not a lawyer and this should not be taken as legal advice, just my two cents worth.)

It does sound like bluster. It's certainly not grand theft (which would be a criminal matter), it's a contractual dispute. When people start throwing around legal terms they don't understand I always suspect that they either aren't serious, or that they know so little that their intent is irrelevant as it's likely to change when they learn the reality of the situation, the likely costs and so on.

My guess is that if you made him an offer - possibly just 50% of profit to date - he'd accept and go, but what you need to make sure is that any deal you do with him makes clear that the payment is made in full and final settlement of the matter.

In the UK full and final settlement is a specific legal term (I'm guessing that there is a US equivalent) basically meaning that the matter is settled and the other party can't then return at a later date with a further claim. This should be stated clearly in the accompanying letter (make sure the letter and payment are signed for and you record all details) and also make it clear that by cashing the cheque he waives any right to further payment or claim against you or the company in relation to any business dealings you have had.

But the point others have made is valid - just because it's not worth him suing now don't assume it won't be worth it in the future.

I own the company at the moment i repeatedly request to form a u.s corporation with the money we got he was avoiding to do so bcuz he wanted to make sure we make 50-100K before we make any company which sounded fishy to me.

Ah, well in that case, perhaps it's your erstwhile partner who is screwed. If you have the company and physical control over the site, domain, etc... it sounds like it would be difficult for him to actually get at you.

By the way: when replying, use the 'reply' link.

He could still sue but : - Does a US court have jurisdiction on a foreign company operating from a foreign country and that has no legal entity in the US ? - Even if they could, what can they do other than prevent that company to make any business in the US ? - And then, can't the OP just make another company in his country that would buy the assets from the previous one ?

(I don't know the answers to those questions)

no, it's near-impossible to sue unless they have a physical presence in the United States.

Additionally, an American investor can't be an individual investor in an Indian corporation.

If they really wanted to be on the "up-and-up", the American investor would have set up an American company, with the Indian company as a 50% investor. Then, the Indian company would sign a legal document assigning all copyrights to the American company.

Since nothing was on the up-and-up, and nothing was even signed (I hate email/telephone contracts), the American investor has very little leverage. Since he's threatening to sue, I would exploit it.

Although I agree that nobody is going to sue anybody in this situation, I'm curious about the technical legalities.

Could the "new venture" be viewed by a U.S. court as a continuation of the old venture? Could the acceptance of the $1000 salary in the first two months be construed as a contract of some sort? Also, the OP says in a comment that he requested that a US corporation be formed, so there are probably emails to that effect. Would such a request be considered to mean there was a partnership in place already?

Again, I agree with other commenters, there will not be a lawsuit over $2000. But the 50% of the company could be enough incentive if you were successful enough, so the OP might want to get solid on where he stands. It sounds to me that there's a bit of a backstory, maybe enough to make a court look twice.

It's not over 2000$, in the post he states that they made 4000$ in a week.

Well, there's two sides to every story. He fronted you cash on a project with some risk of it going nowhere, and he did contribute time as well. He's got some legitimate ownership claims.

Now, you feel like he's not worth what he's getting, and this happens. Actually, one of the most common reasons partnerships break down is because of perception of the other guy's work rate.

I'd look to negotiate a buyout for him. He does own some of the company. On your side of the story, it looks horribly unjust. But you know, there's his side of the story where he spends time thinking about the company, consulting with you, risks his money, etc. He's probably feeling like you're trying to screw him and that you're being terribly unfair as well.

Try to negotiate a buyout that includes him relinquishing all ownership of the company. He did put time and money into this and backed you with no guarantee of return - he's entitled to something. The court thing is a non-issue at this stage unless he's really vindictive, but it'll be like an ax hanging over your head forever if your project is successful, or you want to hire, or raise money, or anything else. Try to buy him out and go on your own way. When you negotiate, don't tell him how unfair it is, etc, etc. This just ticks people off without accomplishing anything. Just focus on how you don't think this is a good partnership any more, and you're sorry it didn't work out, and after thinking about it you'd like to buy him out, and then make a low offer and come up a bit.

I agree with this - just remember that under no circumstances should you give away equity of the company. Tell him that if he wants to own 50%, he has to pay 50% of the costs as well. Tell him you're going to rapidly expand and ask him to commit $50-$100k (that you could easily seek from outside investors) or he's going to risk being diluted. I bet you he will change his tune.

Also, to be realistic having an antagonistic relationship between the two owners of the company is going to be poison. The other guy should understand this; if he owns half the company then hack_rohan is probably not going to be terribly keen on continuing to work on this company.

But certainly the other founder is entitled to a lot more than a thousand dollars here (though there's some vagueness in the description). A good negotiating position might be to tell him he can have half the company or the $2000, and plan to get bid up on the $2000 side somewhat.

I'm not even sure how they would go about creating ownership in the company. An American can't be an individual investor in an Indian company. An Indian without a working visa can't have a startup in a US company. Ownership issues are convoluted, and would take way more money on lawyer fees to figure out.

Everyone keeps bringing up US laws with regards to ownership, but remember that this is an INDIAN company, where different rules apply.

You don't need a working visa, a visa, or to even set foot in the U.S. to be shareholder/owner of a U.S. company.

That's true but Indian law is an absolute minefield, particularly for those not familiar with it. I have a former colleague who is still embroiled in a case that's been going on for over a decade. Jarndyce and Jarndyce anyone?

It would take a brave soul indeed to get involved in that from abroad with relatively little at stake.

Sounds like you have read "How to win friends and influence people". Going in negative isn't going to get you very far

You are acting horribly. You talk about this guy as your "former co-founder" when he is your co-founder. This is a guy who looked out for you when you needed help and chipped in money and effort to support the business in good faith. And not only are you screwing yourself by cheating him, but you are screwing your fellow countrymen. If there is ambiguity in your original agreement work it out in good faith.

If you are running the business and he is doing no work on it right now, it is reasonable for you to pay yourself a respectable salary before sending any profits back. Plenty of companies don't pay dividends. But unless you are eager to shoot yourself in the foot you need to send him an email apologizing for your behavior and putting things right.

You guys can downmod this one too. When it comes to doing business, your word is your bond. This guy made an agreement with someone that he wants to break unilaterally now that he has some money and the agreement is inconvenient for him. This is a simple question of honesty and integrity.

And I would love to hear from those of you downmodding my comments on why exactly you think this guy should get a free ride on the do-unto-others principle. And please post under your real accounts so others have fair warning when they make agreements with you.

Having an agreement is one thing. Threatening to sue and blackmailing with invalid immigration-related claims is quite another. I don't believe the former partner has a case for anything, but if there is any claim, it would be for breach of contract, not theft. Certainly nothing that would land either a conviction or a permanent visa denial. This is a scare tactic, not a pursuit of a claim. It sounds like the two had both committed to work on the company, but only one really did and he now feels used. Obviously we only have one side of the story, but from the available data it seems it was not the OP who broke the original commitment to the company.

Also, how the hell is he screwing his countrymen, as you claim? Are you saying that because someone got screwed by someone in country X, noone will want to do business with other people from country X anymore? That makes no sense.

"I don't believe the former partner has a case for anything, but if there is any claim".

That's the reason for the threat. He has no other way.

He is a former co-founder(their co-founded company went under) currently he is an angel investor in this startup. He is asking for 50% of a company on $1000 investment (that is to say an initial evaluation of $2000) for a company that has already turned 4K in profit. The investor has already broken his side of the agreement of 500 a month for 6 months, Why on earth would he expect a full share of the company? He deserves something more than his 1000 back, but it should be closer to a couple of percent ownership. Considering an angel usually gets 10-20% and his early break of contract that would put it at around 3-6% ownership. If he still wants in he should get it, or a new valuation and pay out on that amount of ownership if he doesn't.

I'm not sure why this is being judged bad advice, because this is certainly the path to the least painful solution. If lawyers get involved you're going to burn through any profit you might have had and for what -- to win a moral victory? You need to speak to this person -- face to face ideally, on the phone if not -- and ask what their ideal outcome is. You need to explain, in a reasonable way, what your ideal outcome is. Then you need to talk, and to come to agreement. You might find that he'll settle for 20% of the company and some cash. You might not like it, but that might be a great solution -- 80% of something is better than 100% of nothing. The 80/20 figure is just an example.

When things turn nasty you end up with a zero sum game at best, and quite often you end up lose-lose. You CAN make it win-win again, you just need to detach your emotions and do what's best for you both.

Imagine yourself in his shoes.

You shared risks and responsibilities of the venture along with the money. Keeping aside the friction with the co-founder, you deserve 50% of the company.

> "500 USD for 6 months and also 2 - 4 hrs commitment everyday"

> "My co-founder paid for 2 months"

> "10-15 days avg 1-2 hrs on advicing"

Not a lawyer, but based on the post I would suspect that there is a straight forward argument under common law that the ex-cofounder was in breech of contract.

> All agreements we had were via chat and voice and not in legal sheet.

Sounds like the whole thing is pretty much screwed.

> The company is a not us company but must of our customers are from u.s.

Who owns the company?

Sounds like he has no basis. Talk to a lawyer. You should be fine.

It costs tens (or hundreds) of thousands of dollars to sue someone residing in another country... That's if you can even find a lawyer to take the case against someone in a third world country.

If you feel you owe him more, give him what you think he is worth to buy him out. If you think you owe him nothing, then cut off communication from him.

He has to sue you in your country of residence so until you start hearing from local courts, I wouldn't worry.

Considering how little recourse he has to actually get money from you without spending far more in lawyer's fees than you're actually earning, I suspect he might be convinced to sign a document relinquishing any ownership stake in the company if he is offered that $1000 back...

i offered him back 1000 USD but he rejected also said him i am willing to pay 50% of the profit that will be made in next 2 months one time amount for the money he invested.

That sounds like a great deal. Assuming you make the same amount of money and it wasn't an aberration...

2months X 4 weeks X 4K per week = 32K. Minus operating expenses for 2 months (Let's just use 500 per month here) = 31K Minus taxes (assuming 25%) = 23.25K

$11625 to have a clean corp that grosses 208K a year. Sounds like a no brainer for me... Pay him off, make him sign a final and complete settlement that previous poster suggested.

It's difficult to sue in another country. I don't think he can stop you entering the US or dealing with US companies. Just don't respond to him and don't give him any money. Assume the company is over. Disclaimer: ianal.

What was the 'agreements' you guys made? Was he to have 50% for his advice and money? Or was he meant to contribute as much time as you did? Any tips for us on how to avoid a situation like this would be great

he was to lead business development with minimum 2 hrs of commitment everyday which he failed to do

I send 1900 USD now he is telling 50% of any company i do is urs

He's going to sue you? Haha, for $5000? Not going to happen. Just ignore him and move on.

BTW, don't let the word "grand" theft scare you. Any theft exceeding $400 is called "grand".

ahem you have skills to create a biz worth 6k in income.

Your best option, state you are walking away form venture and that if he wants the 50% you owned to pay up..

Now, when you create the new one..get a lawyer involved and have things in writing.

kick him out! do not pay!

looking for advice from HN readers