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It sounds like you own a contractually agreed upon amount of shares. Since it's not an employment contract but ownership you can just walk away and keep all you

by erikb 9y ago

It sounds like you own a contractually agreed upon amount of shares. Since it's not an employment contract but ownership you can just walk away and keep all your shares until you or the company dies. If they want you out they can buy your shares. But otherwise there is no problem with keeping the shares and walking away. Before I had to fight for my legal rights a few times I always considered agreement more important than legal state. Don't do that. People will exploit that and give you much less than they owe you or ask much more than you owe them. Focus on your legal right first. You wouldn't give them your car or smartphone as a gift, right? Then don't just gift them your shares. It sounds like there is no reason to sell your shares before the company gets more funding, which should also increase the value of your shares. If you don't have a written agreement about the shares take whatever you can as fast as possible.

greglindahl 9y ago
No problem? If the company dies because 1/3 of the cap table is dead, that's a problem.
- kelnos 9y ago
  I think the parent's advice wasn't to screw over the company, but just to approach it from the legal standpoint first. It sounds like his co-founders don't believe he's entitled to his 1/3 share, even though he is. So start from a position of strength (which he already legally has), and then work down from there: "Hey you two, the fact of the matter is that I own 1/3 of the company outright. We didn't start off with a vesting schedule or anything else that would change that. Dwelling on that isn't helpful. I may be leaving, but I do want this company to succeed; my owning 1/3 of something that fails doesn't help me or anybody. I get that 1/3 of the company belonging to a non-participating founder will look bad to investors. However, I've put in just as much work as you two have up to this point, so I'm not just going to walk away empty-handed." At this point it's just about good faith negotiation: "I'm willing to let you guys buy me out of all or part of my stake. What do you think is a fair offer?" All that being said, it is a shame that there was no vesting schedule set up in the beginning, so it might make sense for the OP and co-founders to essentially retroactively make one up, and, if they can all agree to it, all be subject to it. The OP will be giving up some of his shares, and the other two cofounders will feel an incentive to stay and work hard to ensure they vest as well.
  - valuearb 9y ago
    He's not entitled to his 1/3 because typically a startup is worthless without its key employees. If his other two partners also quit, the purchase likely disappears, poof. Essentially he would be asking his partners to work years more so he can get value for his shares while he does nothing. The proper thing is to issue new options to remaining partners to dilute him heavily and keep them motivated to work at building business.
    - kelnos 9y ago
      Absent an agreement that stipulates a vesting schedule or dilution/share return on leaving before some point, he absolutely is (legally) entitled to his 1/3. Whether or not it's best for the company that he keep it (I agree it's not) is an entirely different matter.
      - valuearb 9y ago
        He's entitled to 1/3 of the founders shares. He's not entitled to any new shares and they have the ability to issue as many new shares as they want. Their only restriction is that the shares have to be fairly valued, so they might have to issue them as options with high purchase prices.
    - erikb 9y ago
      but you cannot just dilute shares. Otherwise everybody would do that all the time. You buy 30% shares of a startup for 2 billion, then they just dilute you down to 0.3%. That's not how it works. What they can do is either put him or themselves on a vesting schedule that represents share % with future work.
      - valuearb 9y ago
        Oh but they can. If you start a company with two other founders and agree to a 1/3 split each, or 33,000 shares. After a month you get bored and decide to let them make it a success, quit the company and tell them to wire you your third when they finally succeed. In that case they can issue 1 million new shares immediately to themselves, and with very little tax consequence. It's a one month old startup, worth close to nothing so they can make them options costing a few pennies a share to make it fair and legal with no tax consequences . In the case where you leave with a sale or investment pending, it gets much trickier. The shares have to be priced at fair value. If the company is about to sell shares at $15 per share, new options for the remaining founders can likely to be priced somewhere around $1-$5 per share since they will be common shares, not preferred shares like the ones being sold. They can be fairly valued much cheaper because won't have the special rights of preferred shares, and should be less liquid.
- erikb 9y ago
  Why is 1/3 dead? Usually if you own 1/3 of the company you paid for it with adding time, money, intellectual property, etc. You bought these and the corresponding value should still be there. Same as with the car. If you buy a car, you pay for it, thereby giving back and assumed equal value. If you then never drive the car you don't stop other people from driving cars. They can buy their own cars. Maybe it's a confusion of how shares work? If you earn 1/3 of a company you earn 1/3 of what is considered the core value of the company (not sure how to call that in English). If a new investor comes he'll give you money to participate in your company. He gives you $1mio, then your core value grows by that amount and he gets a share of the company which equals $1mio/<old_value>. Nothing is lost. The only way to lose in these deals if you sell a share of your company for much less than what it's worth. That can happen, e.g., if you give someone 1/3 of the company because you expect him to deliver something in the future (e.g., code the software you want to sell). But in that case you should put that in the contract. "You work here for 3 years, and for each you get 1/9th of the current size of the company." or "When the software with feature x,y,z is finished, you get 1/3rd of the company as compensation". Make clear, legally enforcable contracts that state exactly what you want, and there's no problem.

by erikb 9y ago

greglindahl 9y ago

No problem? If the company dies because 1/3 of the cap table is dead, that's a problem.

kelnos 9y ago
I think the parent's advice wasn't to screw over the company, but just to approach it from the legal standpoint first. It sounds like his co-founders don't believe he's entitled to his 1/3 share, even though he is. So start from a position of strength (which he already legally has), and then work down from there: "Hey you two, the fact of the matter is that I own 1/3 of the company outright. We didn't start off with a vesting schedule or anything else that would change that. Dwelling on that isn't helpful. I may be leaving, but I do want this company to succeed; my owning 1/3 of something that fails doesn't help me or anybody. I get that 1/3 of the company belonging to a non-participating founder will look bad to investors. However, I've put in just as much work as you two have up to this point, so I'm not just going to walk away empty-handed." At this point it's just about good faith negotiation: "I'm willing to let you guys buy me out of all or part of my stake. What do you think is a fair offer?" All that being said, it is a shame that there was no vesting schedule set up in the beginning, so it might make sense for the OP and co-founders to essentially retroactively make one up, and, if they can all agree to it, all be subject to it. The OP will be giving up some of his shares, and the other two cofounders will feel an incentive to stay and work hard to ensure they vest as well.
- valuearb 9y ago
  He's not entitled to his 1/3 because typically a startup is worthless without its key employees. If his other two partners also quit, the purchase likely disappears, poof. Essentially he would be asking his partners to work years more so he can get value for his shares while he does nothing. The proper thing is to issue new options to remaining partners to dilute him heavily and keep them motivated to work at building business.
  - kelnos 9y ago
    Absent an agreement that stipulates a vesting schedule or dilution/share return on leaving before some point, he absolutely is (legally) entitled to his 1/3. Whether or not it's best for the company that he keep it (I agree it's not) is an entirely different matter.
    - valuearb 9y ago
      He's entitled to 1/3 of the founders shares. He's not entitled to any new shares and they have the ability to issue as many new shares as they want. Their only restriction is that the shares have to be fairly valued, so they might have to issue them as options with high purchase prices.
  - erikb 9y ago
    but you cannot just dilute shares. Otherwise everybody would do that all the time. You buy 30% shares of a startup for 2 billion, then they just dilute you down to 0.3%. That's not how it works. What they can do is either put him or themselves on a vesting schedule that represents share % with future work.
    - valuearb 9y ago
      Oh but they can. If you start a company with two other founders and agree to a 1/3 split each, or 33,000 shares. After a month you get bored and decide to let them make it a success, quit the company and tell them to wire you your third when they finally succeed. In that case they can issue 1 million new shares immediately to themselves, and with very little tax consequence. It's a one month old startup, worth close to nothing so they can make them options costing a few pennies a share to make it fair and legal with no tax consequences . In the case where you leave with a sale or investment pending, it gets much trickier. The shares have to be priced at fair value. If the company is about to sell shares at $15 per share, new options for the remaining founders can likely to be priced somewhere around $1-$5 per share since they will be common shares, not preferred shares like the ones being sold. They can be fairly valued much cheaper because won't have the special rights of preferred shares, and should be less liquid.
erikb 9y ago
Why is 1/3 dead? Usually if you own 1/3 of the company you paid for it with adding time, money, intellectual property, etc. You bought these and the corresponding value should still be there. Same as with the car. If you buy a car, you pay for it, thereby giving back and assumed equal value. If you then never drive the car you don't stop other people from driving cars. They can buy their own cars. Maybe it's a confusion of how shares work? If you earn 1/3 of a company you earn 1/3 of what is considered the core value of the company (not sure how to call that in English). If a new investor comes he'll give you money to participate in your company. He gives you $1mio, then your core value grows by that amount and he gets a share of the company which equals $1mio/<old_value>. Nothing is lost. The only way to lose in these deals if you sell a share of your company for much less than what it's worth. That can happen, e.g., if you give someone 1/3 of the company because you expect him to deliver something in the future (e.g., code the software you want to sell). But in that case you should put that in the contract. "You work here for 3 years, and for each you get 1/9th of the current size of the company." or "When the software with feature x,y,z is finished, you get 1/3rd of the company as compensation". Make clear, legally enforcable contracts that state exactly what you want, and there's no problem.