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How to part ways with a cofounder?

Topics relating to managing people and relationships

TheProcess

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Hello everyone! I wanted to ask something. I ended up having a talk with my cofounder and we both agreed that it isn't working out. What do you think is the best way to move forward. I own 80 percent right now and he owns 20 percent, even though it's not in writing. We haven't made our first dollar yet and only started working on this a few weeks ago. He suggested the following 3 options:

1) I buy him out. He thinks we're worth 24 thousand dollars right now. This doesn't make any sense to me. Maybe I agree to this, but pay him out only if we end up making that amount in profit.

2) He leaves but keeps 5 percent equity.

3) We both go in separate directions, but both continue to work on the business (separate businesses).
 
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Bobby_italy

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Hello everyone! I wanted to ask something. I ended up having a talk with my cofounder and we both agreed that it isn't working out. What do you think is the best way to move forward. I own 80 percent right now and he owns 20 percent, even though it's not in writing. We haven't made our first dollar yet and only started working on this a few weeks ago. He suggested the following 3 options:

1) I buy him out. He thinks we're worth 24 thousand dollars right now. This doesn't make any sense to me. Maybe I agree to this, but pay him out only if we end up making that amount in profit.

2) He leaves but keeps 5 percent equity.

3) We both go in separate directions, but both continue to work on the business (separate businesses).
We need more information.
How much money was put in etc.., don’t leave him equity imo.
 

Taz

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We need more information.
How much money was put in etc.., don’t leave him equity imo.
What does "imo" mean?

1) I buy him out. He thinks we're worth 24 thousand dollars right now. This doesn't make any sense to me. Maybe I agree to this, but pay him out only if we end up making that amount in profit.

3) We both go in separate directions, but both continue to work on the business (separate businesses).

Why does he think its worth 24k if you haven't made your first dollar yet?

What do you mean by two separate businesses? You want to split the company up?
 

minivanman

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It's not worth a penny. You hit the road, he hits the road and if either of you want to start over..... then start over. There is nothing in writing so it really doesn't exist anyway except in both of your minds. It doesn't sound like a very technical business so I'm guessing no paperwork from the city/county/state?

Now maybe you have learned your lesson.... NEVER go in to a business that is your bread & butter business, with ANYONE.
 
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The-J

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The easiest thing for you to do? Part ways and lose his number.

You haven't made a dollar. You have nothing in writing. He wants to quit. Then let him quit.

IANAL: If it's not in writing, then whoever is listed as the owner IS the owner. If there is no corporation or legal business entity, then there is no asset to split.

He has no case if he's not listed as an owner (vice versa with you). He has no case if there is no asset. Even if he's invested money. If he has invested money, and he's paid for these things in his name (like a domain name or a logo), then those things are his and YOU don't have a right to ownership.

This isn't a messy situation, and there's no reason to get lawyers involved. Maybe you want to take it to small claims if you or the other guy has spent some money and wants it back? Otherwise, just let it go.

You owe him nothing, he owes you nothing. Worst case scenario this ends up in small claims.

I was in this same situation with a friend years back. I decided that I would no longer work on the business and he can work on it if he chose. Legally neither of us owned anything but we both had spent some money on stuff like logo design and a few other things. So I just said "bye" and there was nothing he could do about it except maybe take me to small claims court over some things that he paid for. He didn't do that. We both took the L and now that "business" is no more. He's still asked me if I wanted to work on it again but every time I've said no.
 
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virginiaj.yates

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Hello everyone! I wanted to ask something. I ended up having a talk with my cofounder and we both agreed that it isn't working out. What do you think is the best way to move forward. I own 80 percent right now and he owns 20 percent, even though it's not in writing. We haven't made our first dollar yet and only started working on this a few weeks ago. He suggested the following 3 options:

1) I buy him out. He thinks we're worth 24 thousand dollars right now. This doesn't make any sense to me. Maybe I agree to this, but pay him out only if we end up making that amount in profit.

2) He leaves but keeps 5 percent equity.

3) We both go in separate directions, but both continue to work on the business (separate businesses).

I'd suggest you to buy him out, but before doing that pen down every possible expense you may have done for this business and see what your business's current situation is. If it only started a few weeks ago and a/c to him it is worth $24K, he prolly is trying to milk money out of you. Just make sure you pen down every single penny spent for this. It is possible as you may have kept the receipts.

Secondly, do not give him 5% equity. He is not willing to work after a few weeks but still wants to enjoy 5%, that's absurd.

Now, do you think you want to invest your time on this business and does it have the potential? If you are okay with going ahead then follow the first thing. Also, make sure everything is written and stamped as per the law so that there are no claims in future.
 

Lucky Lu

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I'd suggest you to buy him out, but before doing that pen down every possible expense you may have done for this business and see what your business's current situation is. If it only started a few weeks ago and a/c to him it is worth $24K, he prolly is trying to milk money out of you. Just make sure you pen down every single penny spent for this. It is possible as you may have kept the receipts.

Secondly, do not give him 5% equity. He is not willing to work after a few weeks but still wants to enjoy 5%, that's absurd.

Now, do you think you want to invest your time on this business and does it have the potential? If you are okay with going ahead then follow the first thing. Also, make sure everything is written and stamped as per the law so that there are no claims in future.
I am sorry to ask you these questions:

Did you incorporate in some way and he has 50% ownership now or it is just a verbal agreement?
Do you have any kind of contract or agreement with you or third parties that mention your ownership split?
Do you have shared ownership assets of any kind?
What prevents you start working on your own project?

As said by our fellow members, from now on, you should always do solid contracts if your are going to get into some agreement with your partner. It is much needed because now you have an abandoning partner that not only jumps ship but wants money in a situation in which any friend would say I am sorry to bail.

If you need me to overview any agreement or anything just hit me up.

I have a personal story regarding this. After law school we set up business with a friend of mine in a very nice office in our home town. We had an architect using some of our office space and paying rent. The architect made it very difficult to coexist for everybody. All the time collectors were coming looking for him, he was getting claims, we were his lawyers for free and he was ruining the experience.

At some point, the biggest company in my town offered me a job as their in-house lawyer, and they set up an entire floor on their building just for me.

I discussed this with my partner and I felt awful. I left all the money I have put no the project, money down for the lease, furniture, computers, advertising, all the clients and I left feeling really bad and apologizing for my decision. Actually I felt so bad that I never truly forgave myself and always discussed it with my wife.

What I did was that as soon as I could I called my friend with me and set up shop again, now with my connections and the experience of having been in the "big leagues" in my city (which was not big in comparison to the real world). So I took him with me and I gave him a 50/50 split again, even with the growth being so different in those years. I never totally forgave myself for abandoning him for a better situation. He never questioned it. If he resent me he forgave me way before than I did myself. Now we are dear friends and 50/50 partners on the specific office, but that feeling of failing somebody I would never forget. Besides this relationship I don´t think I would ever partner with a dear friend again. At least not fully on.

This is way I hate your situation. Someone bailing and trying to get money is awful man. Someone loyal would never do something like that.

Best of luck!
 

amp0193

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2) He leaves but keeps 5 percent equity.

Think about how big you imagine this being down the road, and at what multiple it would sell for at that revenue.

Now what's 5% of that?

Do you think that's worth a few weeks of work?


No way.
 
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GravyBoat

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Now maybe you have learned your lesson.... NEVER go in to a business that is your bread & butter business, with ANYONE.

I have learned this the hard way. It's true. Most successful people I have this discussion with agree.

Partnerships are cool, IF they're like your 6th stream of income, or if you need OPM (Other People's Money) for funding.
 

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