Sample partnership/cofounder contract clause for force-out payment schedule
I'm altering a contract between myself and another individual. The contract defines clauses for forcing another partner out but does not define how percentage of ownership shall be handled. I.e. how much or what the forced-out partner gets in the event they are expelled from the partnership.
I do realize a qualified attorney is best to consult with for such matters but I am not asking advice in this matter. Only asking if anyone has a similar clause in their own or previous contracts and wouldn't mind sharing that clause here. I've been searching but haven't found any sample contracts that contain such a clause.
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Is this a limited partnership? The answer will change according to what type of relationship/company you have. – Veronica 11 years ago
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Not a limited partnership. Just a regular partnership. – Rks 11 years ago
1 Answer
I think the issue is more "what consideration should someone get for participation" vs "how do we force them out".
One could use a situation like Mike Moyer's dynamic equity model - where a "grunt fund" assigns equity based on value received.
There will be millions of reasons why a partnership could split. If you have a clear understanding up front what equity the partner owned prior to the split, the separation becomes simpler - you either buyback the equity or adopt an absentee owner.
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Correct. It's easy to define ways to force someone out and there are a million sample clauses out there. The problem is that they all seem very heavy-handed or harsh, if you will. What I'm looking for is more along the lines of what's fair considering someone's contribution to the company and the recognition that the company would not be where it is without their participation and dedication. So far, all I see is clauses that basically say, "For whatever reason we hate you now and we want to do anything in our power to screw you over and take all this for ourselves." – Rks 11 years ago
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Perhaps the dynamic equity approach would work then. It attempts to define what contributions (work, money, IP) are "equity worthy". At a minimum, this allows one to remove the equity squabbling from the equation if a split does occur. – Jim Galley 11 years ago
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Hmmm, this sounds like an interesting path. I'll research some more and figure it. You'd expect more from a someone with a degree in business but honestly even though I remember some of this stuff, doing the computer developer/designer thing for years has washed my memory clean of business school. Thanks for your help. – Rks 11 years ago
