3 ms·

> suing me and my cofounder personally to repay his note On what grounds?

H8crilA 7y ago
If you don't pay interest on tjme you are in "default", and creditors take over the company. Old shares (stocks) are deleted, just like that. A loan is a contractual obligations. This is like the 101 of investing, understanding what the capital structure of a company is. Edit: ignore my comment; didn't realize the debt "leaked" through the corporate capital structure directly to the founders; I agree that investor is probably quite an asshole.
- JoshTriplett 7y ago
  I was asking on what grounds someone could expect a personal guarantee from individual founders, rather than a guarantee from the business that no longer exists. (Unless the terms of the convertible note are particularly horrific.) (I'm not questioning that an investor via convertible note has the ability to call the note due from the company. The specific sentence quoted in my reply regarded the expectation of personal repayment after the company was driven into bankruptcy.)
  - deleted 7y ago
    [deleted]
  - hogFeast 7y ago
    Two reasons occur: personal guarantee on the note (I have no idea whether this occurs where this person lives...it isn't something I would ever do, no matter the circumstance) or fraudulent conveyance (i.e. the executives start stripping assets when the company goes into BK, afaik this is a civil action that can be brought against executives either by creditors themselves or trustees).
smallgovt 7y ago
Investor must be claiming fraud or gross negligence.
- ta1234567890 7y ago
  Investor is suing for breach of contract (the unpaid convertible note), trying to "pierce the corporate veil" by claiming alter-ego. In the end we'll "win" this, but that will not save us from having to spend $50-$150k in lawyers to resolve it (if this goes all the way to trial, it's about 18-24 months of paying lawyers which cost about $500/hr, at about 10hrs/month).
  - gnopgnip 7y ago
    Doesn't the D&O insurance cover this?
    - ta1234567890 7y ago
      Unfortunately we didn't have insurance. That's a great tip btw.
  - smallgovt 7y ago
    Best of luck. I've been through something similar and know how stressful it can be. When closing my last startup, we purchased a D&O tail policy to cover cases like this. It's a good way to buy a little peace of mind.

If you don't pay interest on tjme you are in "default", and creditors take over the company. Old shares (stocks) are deleted, just like that. A loan is a contractual obligations. This is like the 101 of investing, understanding what the capital structure of a company is. Edit: ignore my comment; didn't realize the debt "leaked" through the corporate capital structure directly to the founders; I agree that investor is probably quite an asshole.

JoshTriplett 7y ago
I was asking on what grounds someone could expect a personal guarantee from individual founders, rather than a guarantee from the business that no longer exists. (Unless the terms of the convertible note are particularly horrific.) (I'm not questioning that an investor via convertible note has the ability to call the note due from the company. The specific sentence quoted in my reply regarded the expectation of personal repayment after the company was driven into bankruptcy.)
- deleted 7y ago
  [deleted]
- hogFeast 7y ago
  Two reasons occur: personal guarantee on the note (I have no idea whether this occurs where this person lives...it isn't something I would ever do, no matter the circumstance) or fraudulent conveyance (i.e. the executives start stripping assets when the company goes into BK, afaik this is a civil action that can be brought against executives either by creditors themselves or trustees).

smallgovt 7y ago

Investor must be claiming fraud or gross negligence.

ta1234567890 7y ago
Investor is suing for breach of contract (the unpaid convertible note), trying to "pierce the corporate veil" by claiming alter-ego. In the end we'll "win" this, but that will not save us from having to spend $50-$150k in lawyers to resolve it (if this goes all the way to trial, it's about 18-24 months of paying lawyers which cost about $500/hr, at about 10hrs/month).
- gnopgnip 7y ago
  Doesn't the D&O insurance cover this?
  - ta1234567890 7y ago
    Unfortunately we didn't have insurance. That's a great tip btw.
- smallgovt 7y ago
  Best of luck. I've been through something similar and know how stressful it can be. When closing my last startup, we purchased a D&O tail policy to cover cases like this. It's a good way to buy a little peace of mind.