Partner leaving at an idea-stage start up


5

This question might sound dumb, but I'm at a complete loss of what to do.

My friend and I discussed starting a web site business years ago. For about a year and a half, we met every other weekend for a couple hours and brainstormed ideas of how to run this potential business. After the inital period, communications became more and more sparse. I e-mailed constantly, but he didn't respond. After almost a year of no response, I started to ask about exit strategies. He send back and e-mail saying that he would like to keep his shares in this fledgling non-company, but no longer wants to put any time or effort in it.

Here the things that were done:

  • The website design is in complete design infancy (which I do not have the code for).
  • I was responsible for the business plan and it was about 5% complete.
  • We came up with some unique ideas of how we could make our website different and had some potential USPs.
  • We did decide on a name and rent out the domain name (which has probably no longer been upkept) which he paid for (~ $8/year).

Here are the facts:

  • The business was never registered or incorporated.
  • No formal partnership agreement, but a verbal one that loosely stated that we would split the equity 50/50. I discussed a vesting schedule, but we never solidified those agreements.
  • Other than the domain rental, no money was ever put into the website.

I'm still interested in this business, but I'm not going to do all the work and split my profits with someone who is no longer part of it. Can I continue on with this project and assume he gives up his shares or just drop the venture completely? I plan to find a new name and domain, but I would like to use some of the ideas we discussed.

Any answers are completely appreciated.

Legal Partnerships Shares

asked Mar 10 '13 at 23:42
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Mimi
26 points
  • Sorry but it sounds like coming up with another idea without him would only put you ever-so-slightly behind where you are now, which is essentially with nothing (you have a few ideas and a registered domain...that's really barely anything), and yet with the benefit that he can't ever dispute your later possible success (not that he'd probably win a court case without a written contract, but it could be a hassle/time/money-sink). – Chelonian 7 years ago

4 Answers


6

I would draft up an agreement that outlines you are leaving "XYZ.com" and that your friend has 100% of XYZ.com can keep the domain, the website etc. It's 100% his. The outline would also say you are welcome to pursue this concept and market with a new company in the future if you want with no obligation to your friend or XYZ.com for any royalties, ownership shares etc. for any future products or concepts you make whether they were based on XYZ.com concepts or not.

Based on where you are in the life of this company and it's casualness thus far, something drafted by you between the two of you outlining the expectations should be fine. Give him everything you have thus far but make sure you have the right to pursue that market and use what knowledge you have gained while you were a partner at XYZ.com.

By giving him 100% he will probably sign off and you can move forward with the idea and build it how you want, with whomever you want.

answered Mar 11 '13 at 12:20
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Ryan Doom
5,472 points
  • Why would the "partner" agree to this? He already has both the domain and 50% of the vapor company. He would be agreeing to take a useless domain (since clearly he is not going to make the site on his own) fully in order to give up 50% ownership on what the OP might do. It's trading zero for a chance at big. I'd rather see OP scuttle the whole thing and try another idea. – Chelonian 7 years ago
  • I'm assuming that his friend isn't being intentionally a jerk. He probably still thinks he has time to work on this project and make it something. I don't think he is trying to keep him hostage. There are some unsavory, unethical people in the world but I've yet to meet anyone who does it deliberately. – Ryan Doom 7 years ago
  • Are you suggesting that I am saying the partner is intentionally being a jerk? I just am saying the partner would be looking out for his own interests--isn't that the one of the best rule to assume in business dealings? – Chelonian 7 years ago
  • If the person is truly intending to do nothing, and not interested in arranging an amicable exit strategy I would say they are being irrational / jerk. I tend to look out for the best interest of all involved in a business dealing, not just myself. And if I started a business with a "friend" I would certainly expect this... and wouldn't expect someone would want to ride my coat tails when they are not willing to do any work on an idea. So yes, he would be being a jerk. – Ryan Doom 7 years ago
  • I commend you and agree with your assessment; unfortunately, I also suspect the OP's "friend" may then be something of a jerk. The year of unanswered emails is a tip-off. – Chelonian 7 years ago

2

I am not a lawyer, but I've been in a similar situation. First, I would advise you to consult an attorney about setting up a formal corporate structure on your own. Don't guess and most of the time it won't cost you a lot of money. Its unlikely your collaborator has any claim on the business, but laws vary by state and country.

In reality, there are no shares to be had at the moment as there is no corporation, no shareholder agreement, or any other legal structure.

Can you change the idea significantly enough to make it a different business? Its unlikely an untested idea will remain the same during your customer discovery and verification process. Changing the business from what you discussed would make it even more unlikely he would have a claim.

answered Mar 11 '13 at 06:25
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Jason Cole
21 points
  • +1 talk to an attorney! – Littleadv 7 years ago

0

Sorry to be so harsh, but it seems like you haven't done much of anything yet.

if not a single line of code was written, the so called 'business model' you're developing is moot, the unique ideas mean absolutely nothing and the only physical progress you've made was when you bought the domain name.

You can simply buy another domain and apply the same business model to your non-existent project, you also have proof that the other founder doesn't want to work on it anymore, meaning he puts your fragile non LLC company in an even more fragile state.

I wouldn't think about it too much at this point, just build whatever it is you want to build, and because you didn't "kick" the other founder, it's quite moot.

good luck.

answered Apr 9 '13 at 01:36
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Itai Sagi
337 points

0

Another +1 on seeing an attorney in your jurisdiction, because all of this advice will be trumped by the relevant law.

I am going to take the same page as above and recommend you send a letter, signed and dated, and make sure you keep a copy. I would include something like the following:

  1. I would like to pursue a business venture inspired by some of our casual conversations. I would like to offer you an opportunity to be a part of that business venture if you are interested and have the means to contribute. If you choose not to, or cannot meet the requirements, this letter is to let you know what I plan to do. If you disagree with my perspective or plan, within thirty days you will need to provide me with legal documentation making a claim for some right in my future business venture. After that thirty days I will base my actions and expend resources based on my good faith belief that we have no obligation to one another.
  2. We currently have no business entity, which I believe is a necessary condition to start the business venture. We are not working as partners, and we do not share ownership in any LLC or Corporation. My expectation is that we will need no less than $10,000 to get the business venture started. You would need to provide half of that money prior to our working together. Once we have each contributed that seed money, we will need to hire legal counsel to advise us on forming a limited liability business entity (LLC or Corp). If we do go forward, each of us will be responsible for half of all expenses at the time the expenses are due.
  3. We currently have no commitment to contribute time or performance (sweat equity) to a business venture. I believe we would each have to commit to no less than twenty hours per calendar week, and would have to commit to that level of effort in writing, with a penalty of losing ownership rights if we cannot meet the mutual obligation.
  4. We currently have no intellectual property in the form of patents, trade or service marks, nor copyrights. If you have any evidence to the contrary, that evidence to the contrary must also be provided within the thirty days. I also do not believe we owe each other any duty of confidentiality arising from any of our discussions. If you have any evidence to the contrary, again please ensure you provide me that evidence within the thirty days.
  5. It is my belief that we each have an unlimited right to pursue any venture, without obligation to the other or any third party, based on or inspired by some or all of our conversations. I am specifically mentioning this belief that we have no obligation to one another, to ensure you are on notice that you must provide any legal evidence to the contrary within the above noted thirty days if you disagree in any way. Again it is not sufficient to simply express your opinion, you must provide legally relevant evidence so I may pursue any legal action to answer such a claim.
  6. Lastly you have a domain (domain) name that I would like to use for my business venture. I would be glad to reimburse you for all money you paid to register and use that domain name.
  7. Please let me know in writing within thirty five days [note – I am adding five days to account for time to mail] from the date of this letter to let me know if you have the means to commit the $5,000 and the twenty hours per week, or if you do not plan to be a part of any business venture.

In addition to the letter I would discard, and in NO WAY use, anything you worked on prior to starting your new business venture. Dump any code, any graphics, any work on websites, business plans, etc. Do not let any prior work taint what you will do in the new venture.

answered Mar 16 '13 at 08:01
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On The Shelf
180 points

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