Partner leaving, tough situation


Recently I found myself in situation, where I can't decide what the most appropriate act would be.

15 Months ago me and 2 other friends started to work on new cloud software solution. We each contributed the same amount (2500€) and full time working hours (we own 1/3 each).

Idea was that we have one developer (developer only) and two other guys who would take care of everything else (including idea development, design...) but especially sales and marketing once product is developed. One of these 2 guys is me and another is partner who is leaving.

Reason for partner leaving is existential, however I suspect he also at least partially lost interest as well.

Currently we are in phase where product is ready for market and has already paid like 200€ back. We had a discussion and we realized, that we would need to put in least 6-12 months of hard work + around 3000€ for sales related costs in order to create 3 substantial salaries.

Problem is that partner is no longer willing to put any efforts or cash to the company, at least not in near future.

Main consideration here is that work that is ahead of us (sales&marketing team) is most challenging and out of comfort zone (and that's also part of the reason we planned 2 salesmen from start).

He said that he's willing to transfer part of his share to us, but my question here is: does he deserve any share at all? Fact is that if we don't do anything, we'll be forced to shut down company in next 1-2 months anyway.

I'm confused here, because on the one hand his contribution is obvious, so from that point of view he deserves something, but on the other hand if me and my other partner make this significant investment (risk) in future, we do it for just 7-10% of additional equity for each one in best case scenario (assuming we leave him 10-15%)

I'm thinking whether would it be fair if me and developer founded new company (50/50) and start selling under new name, while partner leaving can keep copyrights and 100% of the existing company.

Oh and I forgot to say, that me and developer are fully motivated to work and invest in this project for at least one more year.

Equity Partnership

asked Jun 18 '13 at 09:21
Tic Tac
13 points
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  • You could issue stock options that you could split 3 ways and then have vesting involved so that only working partners (ie the 2 remaining ones) build up their new equity stake. Over time, that would also reduce the share ownership of the departing partner while still leaving him an incentive to come back. – Frenchie 10 years ago
  • "deserve shares at all"? Bad news - this is not yours to decide. The shares ARE his. He deserves them by agreement and law. – Net Tecture 10 years ago

2 Answers


What is the company worth today? When you started, you said it was worth 7,500 since each put in 2,500 and got 1/3 (100%). Since you and one other investor are willing to put in an additional 6,000, and not doing so will end the company, you can easily argue that the valuation is the same. So go ahead and invest your 3,000 each and issue shares using the same formula as before. The new shares will be worth 45% of the company post investment and the original 7,500 investment will fall from 100% to 55%. Each partner that invests would increase their stake, while those that do not will reduce their percentage.

If you and only one other partner choose to invest, you will each boost your stakes from one third to roughly 40.75% while the non-investing partner will fall to 18.5%. If all three invest, the stakes will remain the same. Once the company is operating, those inside will get salaries and other benefits, while the outside shareholders will get nothing until a liquidity event (that's the real cost to your third partner for quitting). Each time you raise money, all existing shareholders are diluted unless they participate in the new round. So the partner that has decided to leave will continue to be diluted unless they opt to participate.

With a 2/3 vote, you should be able to have a shareholder meeting and vote to raise capital right now at a specific valuation. Double check your by-laws to see what is required for a majority vote and move forward. Spending time worrying about things like this is a waste of your time. If you don't invest, you are quibbling over nothing since the company will fold, and you will each own 1/3 of nothing.

answered Jun 19 '13 at 04:31
96 points
  • Only problem MAY be the valuation - you COULD end up in legal trouble if you put it too low. But in general, yes, the approach stands. – Net Tecture 10 years ago


I think the 50/50 option in a new entity could be risky because if your software ends up working then your partner could come back and claim to have been spoiled of his shares in the original company that created the software in the first place.

You could issue stock options that you could split 3 ways and then have vesting involved so that only full-time working partners (ie the 2 remaining ones) build up this new equity stake. Over time, that would also reduce the share ownership of the departing partner while still leaving him an incentive to come back and help.

answered Jun 18 '13 at 11:39
4,166 points

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