How can I avoid being screwed by my co-founder
Im involved in a start up and I fear that at some point in the future my co-founder is going to screw me out my position or shares. What protections can I setup and what should I do avoid this from happening in the future.
Co-Founder Technology Business
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Keep your underwear on? I'm thinking this question could use less colorful phrasing. – B Mitch 13 years ago
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IF you already think that maybe you should not go into business with the person. – Tim J 13 years ago
2 Answers
Hmnn, honestly, your post reads like a red flag to me.
I fear [..] my co-founder is going to screw meCan you make your thoughts and feelings about this clearer to yourself?
On a very high level, my immediate gut reaction is:
- If you fear so because your gut feeling / sixth sense is saying your partner is dishonest: Don't partner with him. Seriously, launching a startup together is a major undertaking, a little bit like a marriage, and you don't want to spend your best commercial years with a bad guy.
- If you fear so because of personal issues on your side of the table: Try to work it out with yourself, and put in reasonable protections in the shareholders' agreements etc. But be mindful of not scaring your partner away with too much negativity, keep a positive tone and focus on the mutual benefit & growth.
Regarding how to protect against this, @Pierre 303 already has good pointers for you. But it's a very comprehensive subject, and there is no single way to do it that is 'best' or always works. Some pointers:
- Once you have been awarded shares, you cannot lose these again, short of criminal negligence or senility on your part. You can however see that the company looses parts of its customers to a competing business set up by your partner, etc. So you need non-competition clauses.
- The two classical documents to make when creating a company are the company bylaws and a shareholders' agreement.
- A good lawyer in your country, who is specialized in company formation and helping entrepreneurs / startup companies, will have seen all this before. Go get qualified advice from such a lawyer.
I think the time-appropriate phrase is that you're afraid you're going to be Zuckerburged.
You need to get a partnership agreement in place that outlines a) how the partnership can be disbanded (Pierre 303's response is one such clause) and b) vesting schedules for the both of you.
