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Co founder problems

13 pointstestsfo10 comments

Person A & B decide to start a company. Both didn't sign any document for the company. Never signed it.

A does: business plan, exe summary, ROI, pricing, gives input for the website

B Does: All tech work with patent, reg the company with delware state, get bank AC, Gets IRS numbers etc. On the any of the doc, Person A names is not there.

A decide to move on to diff direction.

So Person B decide to give some stocks to A, Person A rejects saying, needs more numbers of stocks.

As a Person A can i file a lawsuite againt person B company?

What are the best ways to win the case or based on your experience what / how person B will do for the case?

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My (non legal) advice.

Learn the lesson and move on.

Or rather talk to Person B and try tyo work something out (no threats!).

A lawsuit just sounds an expensive waste unless the company is pulling in a fortune. As far as I can make out you haven't put an awful lot into the site (sorry if that sounds harsh but speaking, perhaps, from B's point of view). He probably see's the code as the be-all-and-end-all of the business and so cant understand why you value your input so high in comparison (what percentage did he offer?)

I'd be inclined to forgoe lawsuits unless big money is on the table. And remember the mistake for next time :)

What percentage is Person B offering? Person A really does not deserve any shares. If you had signed documents, it would have been proper to vest shares, and it does not look like Person A has done enough work to warrant vesting. So Person A should be happy with the shares he recieves, wish Person B the best luck, and hopes the lottery tickets will be worth something someday. If Person A files a lawsuit, the chance of the company failing goes from 95% to 100%. So what's the point?

> business plan, exe summary, ROI, pricing, gives input for the website

sounds to me like person A didn't do much & should be thankful to get anything

Well, in my opinion there will not be any winners here, only losers (except for the lawyers).

But if you want to get what's yours (and to me it looks like a buy-out offer is the best that is in the cards) it helps if you have as much documentation as you can find, then visit a lawyer that will take your case on a no-cure-no-pay basis. Otherwise you might be out a large amount of $ just to find that you won't get anything at all (or just enough to pay your lawyer...).

It also helps to get an idea of what you think this company is worth. If it is worth more than several tens of thousands of dollars then you have to explain why you never had any kind of contract drawn up.

In the current situation, having an argument with your partner is actually a pretty good moment to figure out where you stand, after all he's still around to argue with.

Imagine how it would have turned out if one day he'd died and you would have had to prove to his estate that you own part of it...

Have a man-to-man talk, lay out the land for him, be fair and pay up what's a reasonable amount (and be reasonable) then go do something else, or alternatively offer to buy him out.

If there is no friendly response weigh your options and if you think it is worth it get a lawyer.

good luck, you'll need it.

This will take a lot of time.

Person A wasn't on any of the incorporation documents? Sounds like Person A wasn't paying attention, and just got either a very cheap or very expensive lesson.

I would negotiate for more shares, but then take what you can and move on. If this is the way Person B does business, why would Person A have any faith that it will go anywhere? Especially since Person A is no longer working on the company and chances are wouldn't have left if it was the next Facebook/google?

If Person A had signed an agreement, it probably would have had a bunch of stock upfront, but then each of you would have a pile that vests over time, so that if you had left the day after signing the documents, you wouldn't be owning 50% of the company and not putting in any time.

Person A decided to move on to a different direction. Person A let the company be incorporated without their name involved. Person A should move on and let Person B fumble along.

Disclaimer: I'm not a lawyer, and am not providing legal advice. I am, however, closely related to a partner at a CPA firm who deals with this sort of fall-out all the time.

The lack of documentation is hugely problematic, and will only be settled by negotiation or court.

In this case your equity stake in the company is going to be parsed by the court according to your initial contribution to the company (not total contribution, INITIAL contribution)... particularly money. They're going to try and figure out who put money in and when. They'll use that to arrive at an equity figure and current valuation. This is a really expensive forensic process, so.. uhm.. be prepared.

There are some pretty interesting tax implications here as well. In some cases the court will grant additional equity to a founder based on some metric for amount of work, or expectation of the role at founding. This can have some interesting tax implications, as the IRS will view that additional equity as income (and thus the starting capital for the company becomes a huge deal).

That's just the tip of the iceberg here, sadly. I've seen this go in a variety of directions based on verbal agreements, agreements with folks outside of the company, and the general mood of the litigators working through this.

One thing you SHOULD talk to a lawyer about is how long you have to make the claim. Often folks will just sit on the sidelines and wait to see if the company goes anywhere. Once it does, they THEN move after their 'rightful' equity as there is some actual cash to be had. Spending thousands (if not hundreds of thousands) of dollards on a lawsuit for a company that will likely never make a dime doesn't seem very smart.

As a Person A can i file a lawsuite againt person B company?

Aside from exceptional situations (e.g., being declared a vexatious litigant) you can always file a lawsuit.

From what you've said, though -- and with the standard caution that I'm not a lawyer, this is not legal advice, and I'm sure I don't know all the details -- I think it would depend on what happened when "Person A & B decide[d] to start a company". If Person A can show that there was mutual intent to create an equal partnership, he would probably get something out of a lawsuit; a lack of paperwork does not invalidate an agreement (provided that Person A can show that such an agreement existed). It's even possible that a court would decide that Person B had acted to willfully defraud Person A by incorporating the company on his own.

Of course, all this would go out the window if Person B could show that the partnership between himself and Person A had been terminated (either by mutual agreement, or by abandonment).

Short answer: Go talk to a lawyer, and provide him with far more details than you've provided here.

If person A truly wants to move off in a different direction, take the stock and run. Don't waste your time and energy on a lawsuit, particularly a venture that has no capital. Put it into your new direction.

If you really, absolutely can't get it out of your craw, wait until B's venture is funded and then sue.

Person A & B decide to start a company. Both didn't sign any document for the company. Never signed it.

Uh Oh, Spaghetti-O ! Been there, done that. Somebody's gonna get fucked...

As a Person A can i file a lawsuite againt person B company?

Yes, you can. Of course, your estimated costs and chances of a satisfactory outcome are questions that only a lawyer can answer. I can tell you (again, from experience) that it will be long, costly, and painful for everybody involved (whether you ultimately receive satisfaction or not.)

If you feel you've been wronged, and that you've exhausted all of your other options, lawyer up.

I'm not an attorney and I don't know all the facts...but:

Lawsuits = $

Before this snowballs and the attorneys end up being the only ones winning... why don't you see if the venture succeeds?

Person A (if he was smart) would keep his mouth shut until the venture ends up making big $... thn he would go to court

Person B (if he was smart) would be flexible with person A and/or create a vesting schedule where nobody has any stock in the company unless they work on the company for a year and achieve certain deliverables... if person A does not achieve any deliverables, Person A's stock does not vest and he has 0% equity stake in the company.

overall Don't be greedy...person A or person B... go out for some beers and just move-on.

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