Co-founder/Majority Owner running company to the ground, what can I do?


5

Background: I am the CTO, co-founder and sole inventor of a very promising technology company (<25 people) and are sitting on a multi-billion $ opportunity, seriously!) . I now have a minority stake (25%) in this company, after my original co-founder was bought out by an angel investor who put in almost $1M and anointed himself CEO.

The problem is he is a "big jerk" (one customers' words not mine) and is running the company into the ground, because of his ego and imperious/dictatorial personality. This is narcissistic personality disorder to the nth degree. Customers - who are super eager to work with us - offline mention to me that how "difficult" he is to work with, I am very concerned we are headed for complete disaster.

I have tried talking to him to step away, mildly and couple of times confrontational. It has only led to yelling matches and strained our relationship and I am at a loss what to do. I have even tried to ask him to sell his stakes to me so he gets his $ back - no avail.

I know since the CEO invested and technically owns the "IP" (which is a nebulous term), is essentially algorithms which we developed over last few years.

Can I quit, legally "hand over" the code-base, repositories, computers etc. i.e. fulfill my legal obligations. Following that I can wholly rewrite the algorithms from scratch as separate entity? I am the sole inventor - the "brain" behind the tech and can easily do so. Would that be violating the law? p.s. I am talking to an attorney and seeking legal advice. But would like to hear similar experiences

p.p.s. We have filed for patents, but those won't be examined until 2018 or so...As with many complex systems, can be challenged in court as being public domain vs proprietary - some components use public domain algorithms.

Thanks so much in advance!

Co-Founder Intellectual Property Exit

asked Aug 16 '13 at 04:32
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Gupshup
52 points
  • Does the CEO own the other 75% or are there others involved? – Bhttoan 6 years ago
  • The CEO owns about 75%, rest are minor shareholders. Employees, advisors etc. – Gupshup 6 years ago
  • I would approach the CEO from a fiduciary responsibility position. As CEO is is responsible for the success of the company, how this translates into legality is something for the lawyer to advise on. You might be able to unseat him as CEO, even though he owns 75%. If you remove yourself from the company, you could build your competing product while he implodes the company. Once that is done, he might not have the resources to sue you for anything. – Mark0978 6 years ago

2 Answers


6

I would only trust a lawyer to direct your steps. Up front: A CEO doesn't need to be your best friend or even a likable person. (S)he needs to be competent and get the job done. If you can angle the conversation away from personality issues and towards business metrics, you may have a chance to salvage the relationship (and company).

That said, I would check to see what code assignment agreements are in place, and what anti-compete clauses you have signed and have them reviewed.

If you believe that the market can support multiple solutions within the space AND you can develop something that would be outside of the patent claims, then consider leaving and starting anew. Given your opinion of the CEO, expect that some sort of legal action will happen.

answered Aug 16 '13 at 06:56
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Jim Galley
9,952 points
  • Thanks for your response. I will likely see a lawsuit but can fight him in a court of law - I am fully prepared for that. – Gupshup 6 years ago
  • @Gupshup That you are fully prepared and willing to do battle in court is refreshing to hear, and strikes me as somehow admirable. – Chelonian 6 years ago
  • If the company has filed for patents on this technology, that implies that the person asking the question has most probably signed over all his rights to this IP to the company. Leaving and starting a similar company seems dubious, as does successfully suing his former company. – Gary E 6 years ago
  • @Gary - thanks for your thoughts. It's true the IP belongs to the company now, However, like I said IP Is a very nebulous term. They own the IP, but not my brain. What's to stop me from rewriting everything. In fact I'd it would infringe on my livelihood otherwise. – Gupshup 6 years ago
  • BTW I wasn't implying I'd sue, I was prepping to get sued. Hope not. – Gupshup 6 years ago
  • If the company has filed patents for this technology, it is very likely they will sue you if you leave and attempt to compete with them. Patent lawsuits are not something you want to get involved in. You simply can't afford it. Only an attorney can advise you on the legal issues. Patent attorneys start at around $450 / hr. – Gary E 6 years ago
  • Understanding the non-compete clause AND coming up with a alternative solution that is useful to the market yet doesn't violate the provisional(?) patent claims is key here. – Jim Galley 6 years ago
  • Can someone sue for patent infringement even on non-issued patents? BTW, like most software patents the patents we filed can easily be invalidated. I know patent suits are very expensive, but one might think that expense might hold them back. Perhaps we could come to some agreement. Thanks very much for your help and advice! (p.s I never signed any non-compete, and you might be aware that most non-competes are non-enforceable, here in Massachusetts) – Gupshup 6 years ago
  • Opinions vary - see http://www.avvo.com/legal-answers/if-i-file-for-a-provisional-patent-applications--c-783266.html In general, the patent must be issued for someone to claim damages. Standard [IANAL](http://en.wikipedia.org/wiki/IANAL) terms applies. – Jim Galley 6 years ago

0

I think, since you have secured funding once, you must be having access to VC world. Try to find out another VC who might be interested in this idea. Its difficult to sell this opportunity to someone with a disclaimer that it might attract legal case. But if it's really is a billion dollar idea then people might be interested in it even with attached issues. Legal cases are quite costly so why risk everything of yours only, get someone with financial muscle to assume part of the cost and risk, even if you lose some equity. In any case in the current company you have 25% only.

answered Aug 20 '13 at 11:15
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Nitin Srivastava
171 points

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