Tip of the Week

January 22, 2018

 

By Doug Kim, McNair Law Firm

 

When starting a company, it is imperative that you have a detailed understanding with your co-founders concerning co-founder’s roles and responsibilities.  Failure to do so can be disruptive at best and kill a company as worst. While it makes a good movie, no one wants to go through the Zuckerberg/Winklevoss litigation. Unfortunately, we see this issue too often and with some upfront discussion and agreement, these issues can be avoided. When discussing a new venture it is important to discuss the side of a business when everything doesn't go right and address it before these issues arise. Some of the principal points for discussion between co-founders are:

·       Percentage ownership

·       Decision making (including when to sell the business)

·       Duties of each founder

·       Time commitment of each founder

·       How to handle a departing founder

·       How to remove a founder, if needed

·       Compensation for each founder (deferred or not)

·       Capital (cash or otherwise) contributions

 

So, sit down with your founders, discuss these points, and more, and have a founder’s agreement (can be done in the operating agreement) so that there is no misunderstanding in the future. After all, there will be plenty of external issue to resolve without having internal ones as well.

 

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