Startup Operations

Startup Cofounder Issue

Kunle David Cofounder and ceo

Last updated on September 11th, 2017

Hello, I started a startup company a year ago now with a couple of friends. We had the same equal shares because i was the one with the idea but brought them on board cause i didn't have the finances to incorporate and do market research etc.

Few months later we all had to contribute to pay for the development of the software platform we were going to use for the business. None of them could or refused to come up with their part of the contribution. But I on the other hand cause its my idea, have being working to raise funds for the enterprise.

A year down the line, I am now able to get investment for the building of the software app. I have now spoken with another partner who is more interested, but wants us to start another company entirely, but doing the same thing. But I on the other hand want us to continue with the initial company, but dont know how to get the other directors off the board as they seem no longer interested, apparently cause of their laid back attitude.

So my question now is how do i go about getting them off the board for good?

Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

September 13th, 2017

I am not sure why you want to keep the initial company with the baggage it has, when you could start fresh with the new investor. But assuming that you have a good reason to do so, I would suggest that you offer to buy out the shares of the other directors. If they give you fair terms they get some cash out and you get them out. If they don't accept you can leave the company, start the new one, and they own a share of a company that generates nothing. Surrender your shares and officer position and make it their problem to shut down the old company and take it through bankruptcy. If they are rational, taking the payout will seem the better course of action.

Paul King Software Entrepreneur, Product and Technology Strategist, Scientist

Last updated on October 12th, 2017

The answer depends on what agreements are already in place with the other current partners, particularly written agreements.

I'm assuming the board directors here are also the cofounders and the shareholders, so everyone has 33% of the stock. I also assume that there were no stock purchase agreements that required, for example, 4 year vesting on the condition that the founders work full-time for the startup.

A friend started a partnership with 4 co-founders, one of whom never quit his job to join the company. He wanted to keep his shares anyway, 1 year in with everyone else doing work, so they had to threaten to disband the company and reform.

In your case, your main leverage is that you brought the idea to the company (so you had the idea before you joined the newly formed company), and I'm guessing you didn't sign an intellectual property assignment agreement which would have transferred the idea to the company in exchange for stock. I am also assuming you were never paid by the company for your work, and that none of the co-founders did work for pay either.

You could propose the following plan with the cofounders:

You say you are still interested in the idea, but your sense is that no one else is, and no one else other than you is working on it. You would like to work on it full-time, along with people who are also working on it full-time. So you propose some options:

Plan A: Everyone disbands the company. Everyone can use the idea individually if they want, and everyone proceeds on their own with whatever career interests them.

Plan B: People are committed to the idea and the company. Folks agree to quit their jobs within 30 days and start work for the company full-time.

Plan C: Anyone who doesn't want to do Plan B agrees to sell their share back to the company for what they paid and leave the board.

Plan D: No agreement. You need to get on with your life, so you will return your shares to the company and resign from the board. Since you were never paid and the idea pre-existed the company, you will go forward on your own with the idea as work never done for hire. If the company agrees to refund your purchase price, you agree to grant the company full rights to use the idea you brought to the company (which is your preference).

This would force a discussion about what the other founders want to do with the possibility of reaching an agreement (possibly a hybrid of these plans) that works for everyone.

Plan D is your leverage that you will act unilaterally if no one wants to agree nor start working full-time.