co-founder, employment, vestingLet’s assume a company has two founders A and B with 60% and 40% of equity respectively. Both A and B are under a 4 year vesting schedule.
How can founder A fire founder B if B does not have a employment contract? By “fire” I mean stop the vesting of B.
EDIT: Here is wording from a draft shareholder agreement:
Forfeiture of unvested Shares: In the event that engagement by the Company of the Employee or Director ceases during the Vesting Period (Forfeiting Shareholder), any unvested Shares shall be forfeited and transferred back to the Company (at nominal value only).
Bad Leaver: In the event that engagement by the Company of the Employee or Director ceases during the Vesting Period as a Bad Leaver, the Forfeiting Shareholder may also be required to transfer all vested Shares on written notice any time before 12 months after the end of the Vesting Period.
Where such transfer is required by the Company, the consideration payable for those Shares shall be the lesser of nominal value and the subscription price paid for the Shares.
A “Bad Leaver” is anyone who ceases to be an Employee or Director at any time due to fraud, dishonesty or gross negligence.
Based on the information provided so far:
If you can hire someone without a contract, you can also fire them without a contract. A problem may be that it is not clear who is the boss of whom. Theoretically it would be possible that the person with 40% share is the CEO of the company and he is in charge of firing people … if you have no contracts, job descriptions or defined roles that may be a problem.
Obviously if you fire someone not “due to fraud, dishonesty or gross negligence” then the person will not be a bad leaver.
The situation is rather delicate. I suggest that you consult a lawyer to be sure.
The answer is in plain English in what you posted:
In the event that engagement by the Company of the Employee or Director ceases during the Vesting Period (Forfeiting Shareholder), any unvested Shares shall be forfeited and transferred back to the Company (at nominal value only).
Ergo, the majority shareholders, aka you (I take it you’re A), agreed to discontinue B’s involvement as Director. As specified in the shareholder agreement, B ceases to vest shares from that point.
Your problem, of course, is that this is a draft agreement, which I take to mean it wasn’t signed. If you’ve nothing signed, do you even have an agreement somewhere that says you’ve 60% and your partner has the remaining 40%, or some kind of agreement that specifies that the IP is owned by the company? If not, you’re on rather shaky grounds. Either way get an attorney involved in there if you can’t reach a friendly agreement with your former partner.
I think you are confusing responsibilities / rights here. The two of you are part of the company in a number of capacities.
As a shareholder, or a shareholder with a vesting schedule, you operate under the shareholder’s agreement, which you quote in part of in your question. I’m concerned you have a draft agreement which is not signed. Depending on what country you are in, for the UK, a verbal agreement is as legally binding as a written agreement, just harder to prove the terms if a verbal agreement and more liable to be broken on that basis.
A director is a position of legal responsibility within the company management structure. There is nothing about ownership (i.e. shares) in being a director.
An employee is a person with an employment contract who performs work for a company in exchange for money. The contract may be actual (verbal or written), or implied due to working conditions within the country and imbued by the law.
So how to progress this situation … I would expect you don’t have any clear employee hierarchy, so it is difficult to “fire” him as his supervisor. But as the majority shareholder you can “vote” to fire a particular employee. Another alternative, is even though you have (probably) no employment contract, you can “fire” him if he is in a breach of what the man on the street would consider reasonable. e.g. embezzlement, fraud, etc.
All content is licensed under CC BY-SA 3.0.