Repercussions maintaining ownership to a company I am not actively contributing to


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I am a co-founder of an LLC and because of some very heavy issues that has come about, I haven't been an active team member. The business has been around for a few years and, like everyone else who has pursued a start up, I've put in a lot of blood, sweat and tears and would hate to just give it all up.

It's not about the financial gain that makes me want to keep my shares, but maintaining the ownership of what I had started. Should I keep my shares or are there repercussions maintaining ownership to the company even though I'm not actively contributing to it?

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asked Oct 1 '12 at 14:57
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Charlie
1 point
  • And your LLC is under jurisdiction of what country? – Littleadv 9 years ago
  • The United States. – Charlie 9 years ago
  • In the US LLC's don't have shares. Depending on the State (did you know there're 50 of them in the US?), the answer to your question most probably lies in the operating agreement. – Littleadv 9 years ago
  • Okay, share aren't what I meant, but I do own a percent of the business. – Charlie 9 years ago

1 Answer


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This is a very common issue and what you should retain has a lot to do with the circumstances under which you left the company and the types of contributions you made while you were there.

There are four circumstances under which a person can leave your company based on two variables. The variables are “how” and “why”. The how can be that they decided to leave or you fired them; the why can be for good reason or for no good reason.

It sounds like you left the company for no good reason, meaning you left for personal reasons (not related to the company)

Sometimes, a startup employee decides to leave for no reason other than he or she feels like it. Maybe they became interested in something else, or they don’t believe in the company anymore. Maybe they’re just bored. In other words, the company did nothing explicitly wrong, but the employee left anyway. This is probably the most common circumstance under which someone leaves.

In these cases, the employee is basically leaving the company in the lurch and should be prepared to bear the consequences. The company should seek to minimize the damage of the person’s departure. It can be painful for someone to leave under these circumstances, which is good. It deters them from leaving the company on a whim which increases employee retention.

In other words, you should not expect to retain much ownership and it's only fair for the company to want to retain your shares. The best thing do to is find a way to stay involved on a part-time basis so you can still contribute in a meaningful way.

Here is what would happen under other circumstances:

Fired for Good Reason All members of the startup team are expected to pitch in, do their part, and play nice with the others. Failure to perform the tasks and projects assigned can provide a good reason for termination, especially if a team member has received repeated warnings. In fact, unless there are repeated warnings and opportunity for correction, you likely do not have a good reason to fire someone (see “No Reason” below).

When a team member is fired for good reason, the company should minimize the impact on the company by shifting most of the suffering onto the individual that is being fired. If they had equity compensation, then steps should be taken to retrieve the equity so that the company won’t be left with a possibly disgruntled absentee owner (investors hate this). Cash investments should be paid back (without interest) to sever all financial ties with the individual.

Leaving a company under these circumstances is most uncomfortable. This is good because the consequences of not doing your job should provide at least some deterrent for employees.

Fired for No Good Reason Sometimes, there are people on the team that are no longer needed, or the company can no longer support them. Perhaps the company changes strategy and no longer has a need for their skills; or, perhaps they can outsource the person’s role for less money. If the person was working hard, doing what was asked, and being a team player, then the company has “no good reason” to fire that person. I once had to terminate an entire department of hard-working telemarketing people because we decided to no longer do telemarketing.

We live in an “at will” world, so a company can fire someone regardless of the reason. But, contrast the circumstances of Quadrant B with those in Quadrant A. In the case of no reason, the company needs to bear a larger amount of the suffering. Bearing the burden of the termination serves two purposes. First, it provides a penalty to the company for letting people go for no reason and two, it assures other employees that they won’t get hung out to dry if and when the company’s strategy changes.

In the case of firing for no reason, an employee should be allowed to keep the equity they have earned, or receive compensation in exchange for the equity. The compensation they receive should reflect what they had to forgo in order to earn the equity, not the value of the equity. So, if I worked for no salary in exchange for equity I should be compensated for my time at a rate in line with what I would have earned otherwise even if the stock has no value. This may create a strain on the company finances, but it is the right thing to do.

Resign for Good Reason There are a number of “good” reasons why a person can resign from a company. For instance, let’s say the company decides to move to a new state and expects you to uproot your life and move, too. Or, perhaps you were the marketing guy and your manager tells you that you are now in charge of cleaning the toilets. Another example: your manager wants to cut your salary or other compensation when other employees don’t have too. These are things outside of employees’ control that aren’t really their fault

In these cases, the employee should be able to leave with similar treatment as if they had been fired for no good reason. The company consciously made decisions that made a person’s life uncomfortable (even if it was unavoidable). Therefore, the company should suffer the consequences of their choices. If a company acts selfishly under these circumstances, they will damage the relationships with existing employees.

In all cases, fairness is critical. How you treat people under different circumstances is a testament to the kind of company you are and what you want to be. Being fair may be inconvenient, but in the long run you will become a better company. Investors, employees, partners and even customers will have more respect for you if do the right thing.

answered Jan 24 '13 at 09:10
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Mike Moyer
284 points

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