Cofounder · Founder Agreement

Leaving as founder, what happens with equity?

swati gupta ...

January 20th, 2017

I'm leaving a startup I founded due to disagreements over team/strategy. I worked on it for about half a year.

When we founded the company, there was prior work done, so we vested some equity up front to acknowledge that. Since that time, we've pivoted and also recently added team members. Now that I am leaving, the other founders are asking me to return some/most/all of the equity that was vested up front.

Is this reasonable? Do I have any obligation to return/surrender the vested equity?

Additionally, when I voiced objections to returning the vested equity, they brought up the fact that they may start a new company on the same idea and reset the entire equity metrics altogether. Is this common? Thanks so much!

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

January 20th, 2017

When you set up a company it is common for shareholders to sign a shareholders' agreement that would cover situations like this. If you did not spend a little money hiring a lawyer at the time you joined the company to protect yourself, you have no one else to blame now. Sit down with a lawyer and find out what your rights are. This is not a question that can be answered here.

Mike Moyer

January 20th, 2017

This is an all-to-common scenario. Your options are limited. Even if you hired a lawyer and sued them you would be draining important time and financial resources from the company that will inhibit their chances of success. Further, when they go raise funding your lawsuit will taint the deal further inhibiting their chances of success.

My model, called Slicing Pie, is the best way to avoid equity disagreements. The model outlines specific rules for determining a fair buyout price.

If you made the choice to resign or if you got fired for cause, it's probably best to walk away.

If the company changed your role or fired you for no cause, you should be allowed to keep your equity subject to reasonable dilution.

Closing/opening the company with the same strategy and team as a way to reclaim equity isn't very ethical. My gut tells me you would still have a case if you decided to pursue it.

Next time, use the Slicing Pie model.

Dane Madsen Organizational and Operational Strategy Consultant

January 20th, 2017

Irwin's response is where you look first. If the corporate documents do not address this issue, then they cannot really force you to sell the shares back. However, you should also look to see if they have signed up to a confidentiality agreement and an intellectual property agreement. These would keep them from collapsing the company and starting new again. Assume the first is no, and the second is yes, then what they can do is to issue large amounts of additional shares to dilute you to nothing, then do a reverse to take many of them out of the market. You should look to the documents to see if they can do this also. Finally, as Irwin has stated, you need to spend some time with a lawyer on this. They will know where to look and what can happen.