united-kingdom, co-founder, ownershipSummary
Everyone else in a 7-person software startup has left the company, leaving me with 100% of the ownership. I’ve now completed the product we jointly developed and want to sell it. Can any of the co-founders make a claim on income from the product given that they no longer have an ownership share?
Background
I was a founding member of a software startup in the United Kingdom. At the start the company had 7 co-founders and was funded by an equal cash payment by each member.
Every co-founder that left received back their initial investment in full as a means to expedite their exit. This means I’ve had to contribute more cash to cover the (very small) overhead costs.
Current State
I continued working on the product and fixed the significant problem (found a shortcut) and now I’m ready to take the product to market. I even have a few customers who are interested in purchasing the product.
My former co-founders are unaware that the software is working and ready for market. I am very reticent to work with them again because their past behaviour.
Question
Is there any means through which a co-founder who has left an organisation can make a claim on the income the company earns even after they’ve signed away their equity?
I’m no lawyer, and you should seek advice.
On my understudying, the critical question is whether all rights in code, design assets and similar are signed over to the company. If not, there’s the risk of a claim, because such works default to the author/creator retaining rights.
So tackle the question directly. Contact each cofounder and ask if they are willing to sign an agreement transferring all rights. Personally I’d do that by phone, and follow up when you have full agreement with a document. If there’s someone holding back, have an original cofounder call, and there’s a good chance the others will persuade the hold-out to play fair.
If you can’t get agreement, get a solicitor to draft a letter that essentially says, if you intend to make a claim, you need to do so now.
The only times I’ve heard this kind of thing ending badly has been when a past cofounder passes away and it’s a legal professional who decides the estate may include a claim. So better IMO to try and tie off loose ends than to have the worry indefinitely.
I am not a lawyer at all, so I cannot really answer your question. I just thought about a statement from my lawyer, he gave me few days ago:
For your entire business life, whenever a decision is good for you, get a written statement or signed agreement about it.
When things go to court, you have no proof with verbal agreements. I know, it’s kind of obvious, but I thought for myself, it might be worth to remember this from time to time.
So the question is, if you have any written documentation about your collaboration from your early startup days. Any mails, contracts or similar texts that might cover this situation. Did your former co-founders signed anything when they left the startup? Important is anything, that expresses their will to withdraw from the collaboration. In my opinion, it is already a good point, that your former co-founders got their investment back, which is kind of a confirmation about complete withdrawal, in my opinion.
Depending on how important you consider this, I would talk to a lawyer about it. Maybe it is also still possible to get your former co-founders sign an agreement (before they know, your product is going to market), so there will be no room for speculation about their rights on the company.
You really should hire a lawyer from your jurisdiction. That is the only way to be positive. Generally speaking, the best case situation is that the organization was originally formed in writing that included a clause covering the departure of co-founders, and the departure of each co-founder was also covered in writing and followed the procedure outlined in the document formalizing the organization. Also, if the organizing document spoke to vesting that would need to be considered as well.
You didn’t refund them their investment. You bought out their interest. Hopefully that transaction was documented as well and made it clear that they were surrendering any current and future claims against or for the organization in exchange for the cash.
If any of the previous founders may be an issue, say improperly documented, then you may want to consider mending the relationship with them. Offer them to come back into the organization with a reduced portion of ownership. Ensure that documentation is updated under the advice of competent legal counsel, and ensure that the documentation memorializing this new arrangement also reaffirms the prior buyout and surrender of interest.
Good luck!
All the original partners contributed money, time, and some kind of expertise. Although the money contributions have been resolved, there are still the contributions of time and expertise. In my mind, all the contributors could make a claim on income based on those contributions. However, all the other original partners abandoned the project, which might weaken their claims.
Another question is this: What if one of the other original partners picks up the project where it left off and completes a slightly different version of your software? If theirs were financially successful and yours was not, would you feel entitled to some of their income?
It would have been easier (of course) if you had written agreements about what should happen in a case like this.
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