4 ms·

Traditionally, yes, but the investor insisted on clauses that were structured in a way for them to retain equity without being obligated to put in money.

by _tmel 7y ago

unknownkadath 7y ago
Might get a lawyer to kick the tires on the contract language. I mean, ianal, but that cant be legitimate, can it?
- gus_massa 7y ago
  I agree. Get a lawyer. @OP: Did you have a lawyer to review the weird clause before signing it? Was it your lawyer?
- closetohome 7y ago
  Contract: Investor gets 50% of company. Company might get money someday but no guarantees. OP's lawyer: Sounds legit to me.
  - digitaltrees 7y ago
    Get a better lawyer. Doesn’t sound like an enforceable contract.
thatoneuser 7y ago
Dude... Not to be a dick but you claim you have experience yet you're signing away half your company without seeing a dime and with clauses that explicitly state they don't ever have to actually pay you? None of this adds up. I have zero experience with getting funding and even I'd insist on a 10% down payment minimum. Otherwise wtf was the point of getting an investor?
- hughes7370 7y ago
  There are many conditions in which this structure is entirely reasonable. However, it gets down to the investor and their track record history. I take fault for not doing due diligence and probing them. Namely: 1. Ask for references of prior companies they have funded. 2. Identity mutual contacts with someone you both know and can verify their credibility. 3. Ask around their reputation of other VCs and people in the space.
  - zwily 7y ago
    Can you describe some of the scenarios where that makes any sense? Sounds bonkers to me too.
    - vikramkr 7y ago
      It is bonkers unless theres something not being explained. https://en.m.wikipedia.org/wiki/Consideration_under_American_law https://en.m.wikipedia.org/wiki/Consideration_under_American... An illusory promise does not count as consideration, and the courts would probably force the investor to pay up the money or, if there were no promises made, the co tract could be overturned on grounds of lack of consideration.
  - vikramkr 7y ago
    How is that structure ever reasonable? It might even be illegal or at least unenforceable on grounds that there is no consideration https://en.m.wikipedia.org/wiki/Consideration_under_American_law https://en.m.wikipedia.org/wiki/Consideration_under_American...
    - hughes7370 7y ago
      This is a good point, I hope so.
  - gitgud 7y ago
    When would this be reasonable? It sounds like Zero risk for the investor... promise money in the future in return for equity, if the idea flops they've lost nothing... ridiculous
woah 7y ago
In the US, you can’t buy something without paying for it. Did you give your investor the equity as a gift?
- quickthrower2 7y ago
  You can’t list something for free on Craigslist? And have someone pick it up?
  - vikramkr 7y ago
    Not a lawyer, but I believe that just giving something away is not technically enforceable which is why you see 1 dollar price tags, and picking it up would count as payment if the person giving it away is trying to get rid of it, the value is kind of in the garbage disposal aspect. And its not that you cant list or pick up stuff for free, you bn obviously can, but you just might not be forming a legally enforceable contract
  - tedmiston 7y ago
    I believe parent comment is referring to "consideration" in the legal context commonly used in contracts to distinguish between unilateral and bilateral agreements. https://legal-dictionary.thefreedictionary.com/consideration https://legal-dictionary.thefreedictionary.com/consideration https://en.wikipedia.org/wiki/Consideration https://en.wikipedia.org/wiki/Consideration
janetacarr 7y ago
For those wonder how something like this can happen I have a theory. It's possible the stock 'purchase' agreement didn't offer capital as consideration for equity; rather, stock would be assigned to the 'investor', and the 'investor' would 'confer' capital to the company which requires no obligation by the 'investor' to provide the capital.
- vikramkr 7y ago
  I looked up the word confer in a couple online legal dictionaries, and if they are reliable, then it seems the word confer means "give, accord, administer, award" etc which would be an obligation to provide capital right? I'm curious how your structure would work in detail - I imagine there must be loopholes in contract law and consideration requirements and yours sounds interesting.
- digitaltrees 7y ago
  People can write whatever they want in a contract, that doesn’t mean it’s enforceable, or will stand up to scrutiny in court. Contracts have to have consideration. That means there must be something of value each party gives to the other.
digitaltrees 7y ago
Contracts have to have consideration (something of value exchanged between both parties). Get a lawyer, fight this. The existence of your company is not something you should just concede, and honestly, this should t take you down, your investor will lose. Or just form a new company, and buy the assets from the old company and move on with your life.
DevX101 7y ago
Sorry to be crass here, but what kind of bullshit lawyer did you hire that let this pass?
bcb1276 7y ago
I’m a lawyer. This doesn’t make sense. What exactly did the clauses say? Did the “investor” make his (non) investment contingent on some types of conditions precedent that you didn’t meet? If yes, then he doesn’t have to fund his investment. But he doesn’t also get his equity. If no, then he breached and you have a claim against him. I would not treat him as an investor and instead talk to a lawyer about putting him on notice that you’re prepared to sue him for tortious interference with your business. The other comments here about the requirement of consideration are correct. Also relevant: unjust enrichment and restitution [0] I’m 100% speculating because you haven’t supplied enough information. The most important part of your post should be the actual language. [0] https://en.m.wikipedia.org/wiki/Unjust_enrichment https://en.m.wikipedia.org/wiki/Unjust_enrichment

Traditionally, yes, but the investor insisted on clauses that were structured in a way for them to retain equity without being obligated to put in money.

by _tmel 7y ago

Traditionally, yes, but the investor insisted on clauses that were structured in a way for them to retain equity without being obligated to put in money.

unknownkadath 7y ago

Might get a lawyer to kick the tires on the contract language. I mean, ianal, but that cant be legitimate, can it?

gus_massa 7y ago
I agree. Get a lawyer. @OP: Did you have a lawyer to review the weird clause before signing it? Was it your lawyer?
closetohome 7y ago
Contract: Investor gets 50% of company. Company might get money someday but no guarantees. OP's lawyer: Sounds legit to me.
- digitaltrees 7y ago
  Get a better lawyer. Doesn’t sound like an enforceable contract.

thatoneuser 7y ago

Dude... Not to be a dick but you claim you have experience yet you're signing away half your company without seeing a dime and with clauses that explicitly state they don't ever have to actually pay you? None of this adds up. I have zero experience with getting funding and even I'd insist on a 10% down payment minimum. Otherwise wtf was the point of getting an investor?

hughes7370 7y ago
There are many conditions in which this structure is entirely reasonable. However, it gets down to the investor and their track record history. I take fault for not doing due diligence and probing them. Namely: 1. Ask for references of prior companies they have funded. 2. Identity mutual contacts with someone you both know and can verify their credibility. 3. Ask around their reputation of other VCs and people in the space.
- zwily 7y ago
  Can you describe some of the scenarios where that makes any sense? Sounds bonkers to me too.
  - vikramkr 7y ago
    It is bonkers unless theres something not being explained. https://en.m.wikipedia.org/wiki/Consideration_under_American_law https://en.m.wikipedia.org/wiki/Consideration_under_American... An illusory promise does not count as consideration, and the courts would probably force the investor to pay up the money or, if there were no promises made, the co tract could be overturned on grounds of lack of consideration.
- vikramkr 7y ago
  How is that structure ever reasonable? It might even be illegal or at least unenforceable on grounds that there is no consideration https://en.m.wikipedia.org/wiki/Consideration_under_American_law https://en.m.wikipedia.org/wiki/Consideration_under_American...
  - hughes7370 7y ago
    This is a good point, I hope so.
- gitgud 7y ago
  When would this be reasonable? It sounds like Zero risk for the investor... promise money in the future in return for equity, if the idea flops they've lost nothing... ridiculous

woah 7y ago

In the US, you can’t buy something without paying for it. Did you give your investor the equity as a gift?

quickthrower2 7y ago
You can’t list something for free on Craigslist? And have someone pick it up?
- vikramkr 7y ago
  Not a lawyer, but I believe that just giving something away is not technically enforceable which is why you see 1 dollar price tags, and picking it up would count as payment if the person giving it away is trying to get rid of it, the value is kind of in the garbage disposal aspect. And its not that you cant list or pick up stuff for free, you bn obviously can, but you just might not be forming a legally enforceable contract
- tedmiston 7y ago
  I believe parent comment is referring to "consideration" in the legal context commonly used in contracts to distinguish between unilateral and bilateral agreements. https://legal-dictionary.thefreedictionary.com/consideration https://legal-dictionary.thefreedictionary.com/consideration https://en.wikipedia.org/wiki/Consideration https://en.wikipedia.org/wiki/Consideration

janetacarr 7y ago

For those wonder how something like this can happen I have a theory. It's possible the stock 'purchase' agreement didn't offer capital as consideration for equity; rather, stock would be assigned to the 'investor', and the 'investor' would 'confer' capital to the company which requires no obligation by the 'investor' to provide the capital.

vikramkr 7y ago
I looked up the word confer in a couple online legal dictionaries, and if they are reliable, then it seems the word confer means "give, accord, administer, award" etc which would be an obligation to provide capital right? I'm curious how your structure would work in detail - I imagine there must be loopholes in contract law and consideration requirements and yours sounds interesting.
digitaltrees 7y ago
People can write whatever they want in a contract, that doesn’t mean it’s enforceable, or will stand up to scrutiny in court. Contracts have to have consideration. That means there must be something of value each party gives to the other.

digitaltrees 7y ago

Contracts have to have consideration (something of value exchanged between both parties). Get a lawyer, fight this. The existence of your company is not something you should just concede, and honestly, this should t take you down, your investor will lose. Or just form a new company, and buy the assets from the old company and move on with your life.

DevX101 7y ago

Sorry to be crass here, but what kind of bullshit lawyer did you hire that let this pass?

bcb1276 7y ago

I’m a lawyer. This doesn’t make sense. What exactly did the clauses say? Did the “investor” make his (non) investment contingent on some types of conditions precedent that you didn’t meet? If yes, then he doesn’t have to fund his investment. But he doesn’t also get his equity. If no, then he breached and you have a claim against him. I would not treat him as an investor and instead talk to a lawyer about putting him on notice that you’re prepared to sue him for tortious interference with your business. The other comments here about the requirement of consideration are correct. Also relevant: unjust enrichment and restitution [0] I’m 100% speculating because you haven’t supplied enough information. The most important part of your post should be the actual language. [0] https://en.m.wikipedia.org/wiki/Unjust_enrichment https://en.m.wikipedia.org/wiki/Unjust_enrichment