Ask HN: My co-founder and I are about to split, what to do? | Hacker News Reader

Ask HN: My co-founder and I are about to split, what to do?

Dear HN,

My co-founder (who is a close friend) and I have been working on a startup for about 1 year now. My co-founder had the "idea" for a startup. He needed a programmer, so we joined forces. His role is supposed to be design (though currently the application uses my design) and sales/business development/marketing.

The product is 99% complete and could be launched in a week. Unfortunately, we can't agree on partnership terms and ownership of the company. My co-founder wants 60% of the company and refuses to split the equity equally with me. My attempts at discussing/negotiating this with my co-founder only stir hostile, belittling responses from him.

I've often felt bullied and mistreated by this person, who treats me like a "resource" and bosses me around like a child. Though in certain stages of the project my co-founder has contributed significantly to mocking up the user-interface, we've gone through many iterations and, currently, 100% of the design AND code was created by me.

It's looking like we are about to go our separate ways, and my he is threatening legal action and asking me to sign an NDA.

He is not trying to take my work. He wants to start from scratch again by finding a co-founder or hiring a developer to build his idea. The thing is, I'm still invested in my product. I don't want to ditch it.

I haven't signed anything up until now. I think my co-founder registered an LLC, but we've never agreed and signed any sort of partnership/ownership/nda agreement. What power do I have in this situation? Could I find a new non-technical co-founder and launch my product? As a last resort, I would even launch my product for free so my co-founder does not find another poor technical co-founder to abuse. I feel very cornered right now.

I've spent over 1200 hours designing and developing and have a very strong vision for the product.

What can I do?

Thanks in advance, HN. You guys are the best.

* ONE SUPER-IMPORTANT FACT I FORGOT TO MENTION * My co-founder does not have access to my code. I've suspected a partnership breakdown for awhile now, and since I haven't signed anything legal, I decided to make sure all of my work stayed out of my co-founders hands. I've never signed any agreement. I haven't been paid a penny.

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Move on. The project is tainted. Neither of you will be able to use the code: your business partner has no rights to it, but surely has a good enough story about your partnership and his contributions to take you to court (see 'grellas comments on the TechCrunch v FusionGarage fiasco if you were hoping that everything is clean since you don't have an actual contract). Court = death. Forget investment; there's a storm cloud hanging over your business.

Your BATNA in this negotiation is "get on with my life and leave you with zero"; that may be a strong enough position to get your partner to let you buy him out (or vice versa). That's about the best that will come of this.

You could "lawyer up", but that's not going to help you that much, unless your former cofounder is dumb enough to take you to court or make a break for it with your code. It's hard to argue that someone shouldn't talk to a lawyer, so I'll just say: don't spend too much money on it.

There's no chance you're going to work with someone who threatened to sue you because you wouldn't sign over your code after he tried to take a 60% share of a product you coded by yourself.

I'm being grim, and surely that will irritate you or someone else in this thread, but I'm trying to point out the path that costs you the least time, heartache, and money.

So he is supposed to chuck all his hard work and walk away? No way. He should roll up his sleeves and put up a fight. No one has ever succeeded by being a wimp, except windows 3.0.

It would take less effort, and offer far greater chances of eventual success, for him to simply pick something else to work on and execute on that.

It's just business.

This is why partners should incorporate and come up with a mechanism for handling acrimonious departure before getting to work. A classic response to this problem is the shotgun clause.

If great companies were built by those exerting the least effort we would live in a very different world today.

The early histories of many successful SV companies are peppered with a sour business deal or two. The winners are those that hung on and fought. Did Gates walk away when when Jobs discovered that he was building GUIs? Who walked away from Facebook? Zuckerberg or the other guys? You know the twins...or "those other people" whoever they were. You get the point. Exactly, its just businesses.

I don't see the issue here as being the choice of the easiest road, but of the road with the least to lose. There is definitely a lawsuit here if he decides to continue with the product and use the code he created, leading to quite a few legal fees. If he drops it and moves on to another product he is guaranteed not to lose any more money on this project.

If he had a business, instead of "99% complete and ready to launch", you might think about offering him more optimistic advice. Diving headfirst into the drama swamps with no users up front seems like a bad business call.

Well, there's definitely a lawsuit if he uses the code and succeeds. For a Facebook level of success, well, that's just a cost of doing business. A moderate level of success will probably leave only the lawyers as winners.

So he is supposed to chuck all his hard work and walk away?

This "company" has no actual assets of any sort (users, contracts, relationships, press, brand recognition, ...), except for the code, which his co-founder does have a legitimate claim to. And due to the founder dynamics, the company will never amount to anything.

So these guys are basically fighting over 10% of nothing. Yup, walking away seems like the best course of action.

" Court = death. Forget investment; there's a storm cloud hanging over your business."

To me, this sounds like the nuclear option. In fact, the idea of "Mutually Assured Destruction" could be applicable here. If the OP's partner sues them, they could countersue and they'd both be out. That could make an effective bargaining chip.

But if that doesn't work, I'd say that you're right. The OP should move on.

One of the problems here is:

Failure = who cares.

Success = danger (see below).

Big success = guaranteed lawsuit.

There are several failed startups that I'be been in where there was no possibility of the phoenix rising from the ashes because the people responsible for the failure were clearly going to sue if it became a big success.

Even in one situation where the ownership of the code was crystal clear (the primary author was the son of a very big time lawyer and was very careful about that).

In that last case they insisted on owning a majority of a new venture despite their proven ability at failure. In my experience, greed of the sort we're seeing here is a strong sign this situation will never work out; among other thing it reveals a whole lot of things about how the other person views you and your contributions to the venture. It also suggests the other guy is not going to be able to make it work if he parts with you.

This is a great starting point. Start by assuming you'll get nothing out of it, then see if you can claw back anything from there.

Giving up this fundamentally, fatally flawed business is step 1. From this fresh point of view, you might be able to come up with a relative win-win. Maybe your so-called cofounder can purchase the code from you instead of wasting many months getting it rewritten again. That would be better than walking away empty-handed.

That said, I propose a fundamentally different target for the "clawing back".

You said this is a close friend. Fuck money. Fuck the business. Save the friendship. In your position I would assume the business is lost and do whatever it takes to salvage the friendship. Get another friend to mediate. Come to an understanding. Accept that you've both got your fixed, blinkered view of things, and you're not going to agree about it, probably ever, but you can still get back to being friends despite that.

Close friends are far more valuable than any business. I was lucky to keep my best friend when my first business blew up. I am really glad I made the effort, as hopeless as it seemed at the time.

> I've often felt bullied and mistreated by this person, who treats me like a "resource" and bosses me around like a child. > My attempts at discussing/negotiating this with my co-founder only stir hostile, belittling responses from him.

I wonder if there is much "friendship" left now.

However, you should take a break for a few days/weeks so that both parties can cool down, and then try to talk to him again. Hopefully you guys will be able to patch up things and launch the site.

I wouldn't call somebody a close friend if he planned to sue me, take the share that was rightfully mine (unless his work deserved 60%, maybe not in code, but in deals, connections and marketing), and insult me around. That person wouldn't deserve my friendship.

People do stupid things over money or careers. Friends sometimes screw each other over. Shit happens. If the worst thing you do in your life is to demand 60% when you're really entitled to 50% (or even 40%), you've done OK.

Couldn't agree more. I faced a similar dilemma an year and half back. After moving heaven and earth for a month to make it work, eventually I just moved out.

To give an idea of how worse the situation was, the fellow would ask the employees to spy on me for mundane things like connecting to internet. Later verbal accounts of people, suggest that he used my caste as a device in manipulating them.

Nevertheless, I'm really grateful to the person for showing true colors so early instead of many years and dollars (or rupees) later.

Throwing out good code after putting 2+ years of time and money was nearly soul crushing. Yet, it turned to be a better decision when I realized that I could create a superior and totally different product. Now, instead of me worrying for getting sued, the fellow who cheated me has to carry that burden all the time. That leaves me more freedom to focus on the real needs of my users.

Besides, with this experience under the belt, OP will surely get a better co-founder if s/he continues to keep working.

Edited: grammar.

Caste? India's mix of old and new ideas is constantly surprising -- and in this case, shocking.

Shocking, I suppose, but apparently very true and very ugly.

As the son of two professional parents who grew up on farms, that latter fact turned out to be ... rather unfortunate WRT to the last Indian manager I had (a naturalized citizen but was born, raised and went to college there).

As a lawyer, I can't give advice over a forum such as this for your specific case but I would suggest two things:

1. This one is complex enough that you should see a competent lawyer in your jurisdiction to confirm technical points such as who owns the code, whether an oral partnership exists (see, e.g., my comments on this at http://news.ycombinator.com/item?id=1645130 for an analysis of this sort of issue under California law), whether you would or would not have a right to use your code for other work without obligation to your former co-founder, and (above all, given what your co-founder is asking) whether your co-founder has any legal leverage to force you to sign the "nda" or to do whatever else he is trying to force you to do.

2. Most important, I consider what I would advise a hypothetical person in the position of your co-founder as an abstract proposition: you don't have possession of the code and did not develop it or pay value to have it developed on your behalf; you have no work-for-hire agreement giving you rights to the IP, meaning that in your best case you may have only an implied license to use it and nothing more; you came up with the idea but most ideas are not protectable as such unless they are patentable; you might have a claim against your departing co-founder on a theory that you disclosed a trade secret to him in confidence as part of a proposed alignment that never occurred and, on that ground, might be able to claim that he misappropriated a valuable trade secret from you if that secret is truly proprietary and gives you a significant competitive advantage; the foregoing will not apply if the idea is of a type that is being pursued by others, as this puts it in the public domain and vitiates its trade-secret status; you may be held to have waived confidentiality by disclosing this trade secret to your erstwhile partner without having him sign a confidentiality agreement in connection with the disclosure; to enforce this claim, you would need to spend potentially thousands of dollars in a lawsuit fighting over it; in the meantime, your ability to do anything with your idea would be severely impaired because you would have to explain to anyone who wanted to join your early-stage company that you would be devoting major portions of your limited startup resources to an expensive legal fight or, alternatively, that a cloud hangs over your venture in the form of a possible major legal claim by your former co-founder; this sort of thing is virtual death for most startups and serves to dissuade both prospective co-founders and investors from becoming involved with your company; and, last but not least, unless your erstwhile co-founder capitulates and signs documents giving you a clear path to go forward, he can simply sit and wait and potentially assert partnership and other claims against your company at any time it builds significant value, subject only to the running of the applicable statutes of limitations and to certain equitable doctrines that don't him to lay back forever in hopes of potentially sandbagging you. Likely advice to him: "Therefore, threaten away - your main leverage at this point is simply to intimidate."

Given the above, I agree with the many good comments in this thread that it is probably not wise to get embroiled in a legal fight over this situation - yet, this doesn't mean you shouldn't consider using use the leverage you do have to negotiate, if possible, a mutual walk-away that gives you a workable path to use your code in a separate venture entirely, as for example by signing documents that give each party the right to pursue this independently going forward without obligation to the other party. This may or may not be a good option but you should discuss it with your lawyer to see if it might be effective here.

I think my co-founder registered an LLC

One more validation that proves that an online database where you can explicitly pledge equity to someone upfront is a must. Check out the new http://fairsoftware.net that's what it does.

To answer your questions: if it's your code and you didn't sign anything, your "friend" is not in a strong position, since he most likely has no rights to it.

By the way, stop calling someone "your friend" when they threaten to sue you.

Now for a final word of advice and in the spirit of helping resolve a situation that I have witnessed many times, I'm willing to talk to both of you, as a neutral third party, hear each of you out and report back to both privately what I recommend. Use my contact info - I have done this in the past.

Do you freelance, if so, what is your freelancing rate. A reasonable rate is $150hr for a quality freelancer. At that rate 1200 hrs is $180,000. I would tell him that it is 50-50 unless he buys down the hours as contracting hours. So to get his 60% he needs to cough up 18k. If he wants to treat you like a resource then he needs to pay to do so and he should pay the prevailing wage. Further I would tack on an amount for the fact that you are getting paid after the fact and took on a portion of risk assuming that you where getting a 50-50 split. I would put it in writing. It is going hard for him to legally argue against giving you the correct percentage if he is unwilling to pay prevailing wages. Courts usually frown on exploitation of uncompensated labor. If you have given him an out to pay prevailing wages with a justifiable premium for being paid after the fact and he refuses, it will weaken his position in court.

Another thing that I thought of, is that this relationship is soured so even if you come up with an equitable split you still have the future to contend with. In this situation what I would do personally is take the 40% on the condition that a. I am a silent partner and b. The software ownership remains in my name. I would sign an agreement that says that I cannot use or license to software so long as the (his) company. Is actively in business with no laps in between actively doing business. In the case that he stops doing business you are free to use our license your software how you see fit.

This gives you two things, equity for the work you have done with no commitment to work with him further. If he succeeds then it is all good, make sure you have a forced buyout clause, where you can demand that your share be bought out or that you can sell it. If he fails ownership of the software reverts back to you and then you can have a go at it.

The way I see it, that gives you two shots at making it work. Either he succeeds and you get a profit for the work you have done with no further involvement. Or he fails, you get 100% ownership and you get to have a go. Either way, it gets you out of this mess with no involvement with him anymore.

Ok, my $0.02:

Take your code, rip out the front end and the design, keep the back end and any business logic. Stick a new face on it and find a niche not directly related to your original target and pivot with yourself as the 100% owner of the new project.

Your co-founder at this point contributed nothing but the idea, let him take his idea and reboot with someone else but reserve the right to use your code for projects not related to the market he wants to go after.

Make up a document that details the split and have an independent party witness the agreement and give a copy of the contract to your co-founder.

In dutch we call this an 'akte van finale kwijting', I have no idea what it's called in your jurisdiction but supposedly your friendly neighbourhood Grellas will be able to tell you and probably has a boilerplate piece of text for you.

It shouldn't cost you more than a few hundred bucks.

After that you both walk away with your original contribution.

best of luck.

1. Under [U.S.] copyright law, both the UI and the code could fall under the category of "joint work," namely "a work prepared by two or more authors with the intention that their contributions be merged into inseparable or independent parts of a unitary whole." If that's the case, you could each be co-owners, with an obligation to account to each other for your respective future uses, for example, split the proceeds.

2. In court, the accounting could be messy and expensive. As an alternative, if your "friend" were amenable, you could sign a walk-away agreement that, in essence, let him do what he wanted with the UI, and you do what you want with the under-the-hood stuff, with no obligation to each other. In the agreement, you could consider an early-neutral-evaluation clause (see http://goo.gl/f2Js) and a fee-shifting clause (see http://goo.gl/J1JK) to create incentives to settle the (likely) subsequent disputes.

3. Another possibility is that, LLC notwithstanding, you were legally a partnership, with each of you owning an undivided interest in [EDIT:] the partnership, with the partnership in turn owning everything, e.g., the UI and the code. For that, a lot would depend on what state(s) the two of you are in.

(Disclaimer: I'm not your lawyer, YMMV, etc.)

Thanks for hanging out here and helping clear stuff up!

(I know Bindview from way back; my friend Adam Shostack used to work there, back when they competed with the security company I was at at the time.)

Its situations like this that make me wish YCombinator had some kind of resource available to the general startup community to advise on similar situations.

I started a company about 4 years ago where I was the sole developer and the idea was mine, but the financing and business end were mostly being handled by my old friend/boss. I knew absolutely nothing about how incorporation or IP laws worked. I really wish that there was some kind of "Start Here" guide at the time, a "Startup for Dummies" kind of resource.

In my specific situation, the failure of the company wasn't due to disagreement or anything. Rather, the economy in Florida tanked earlier than the rest of the country. This negatively affected the folks I was working with and they needed to relocate elsewhere in the country to support their family. Meanwhile, I was going through a nasty and heart-rending breakup with my longtime girlfriend and ended up ditching everything and moving to San Francisco. In the end everything has worked out, and while I learned a lot from the experience, I still wish that "How to" guide was out there at the time.

First of all, this is terribly hard to decipher with only one side of the story present (although it seems you have a presented a reasonably unbiased argument). But in my opinion if the idea is truly worth what you think it is I would consider a proposition to start out 50/50 and as revenue comes into the company he will have the option to buy out your equity (only up to his requested 60/40) at x number of dollars per share.

This ensures for him that he will get that ownership he wants, and although you will ultimately end up with less in the end if the company is a huge success being the technical founder of any startup leaves many more doors open for your future in the end. And the possibility that it will not succeed entirely yet you would still get a (presumably) significant amount of money from the initial windfall would seem like a win/win to me.

Again, that is just IMHO so take it for what its worth, but as someone who has out significant amount of time into several projects and seen some pay off both big and small that is an awful lot of time to just let it go to waste.

That said, whatever you do, do NOT agree to go separate ways AND sign a NDA. The situation you are in now holds up much better in a suit than one where you sign an NDA then decide to launch any way. With one man's word against another it is hard to decipher how that lawsuit would turn out, but I am willing to bet it is significantly more likely to be better for you without that particular paper trail.

Hmmm, you made a mistake in not having your agreement in writing when you two agreed to work together.

Having said that you must now move on. You have the code, he doesn't have any rights for it. If you stay, this will backfire big time down the road.

The partnership must rely on trust and respect, clearly not what's happening here.

Move on.

Firstly, are you sure you describe the situation objectively? If this were a novel, I would consider the storyline under-developed. There must be some reason, however injust, why your co-founder thinks he should get a majority share. For example:

"currently, 100% of the design AND code was created by me."

You may have done the typing, but you also acknowledge that there was a lot of discussion that led to the current design. I guess that this is an area where your co-founder may see things very differently ('(s)he did the technical stuff, but all the ideas are mine')

As to your question, you should decide what you value more: getting back on your co-founder, or having the product succeed. In the first case, go talk to a lawyer; in the second, I think you should get an agreement that includes you leaving the company ASAP. That ASAP is because of phrases such as 'bullied', 'bosses me around', 'belittling' that make me wonder about the 'is' in 'who is a close friend.'

How much you can get out of it depends on the value you have to the company. That will depend on the technical complexity of the product.

I'm not "in" any company, though. Or am I? I've never signed any agreement. I haven't been paid.

You don't have to sign a contract for a counterparty to claim that a contract exists; worse still, your partner can claim, even the absence of a paper contract, that there are fiduciary duties you owe to each other. It helps you that you've never received consideration from your partner, but I doubt it helps so much that he can't take you to court out of spite.

Your "friend" might even claim you were an employee of the LLC.

Not unless he paid him regularly, offered him health benefits, and paid unemployment insurance. A claim like that could land his "friend" in jail.

This comment makes no sense. I'm an employer. I assure you, you do not need to offer health benefits, pay unemployment insurance, or even pay on a regular schedule for someone to be classified your "employee"; having seen unemployment insurance SNAFUs firsthand, let me assure you that "jail" doesn't enter the picture here at all --- they simply send you a bill.

> This comment makes no sense

I think tptacek is correct concerning the legal issues here. In any case, I didn't say the "friend" would prevail in his claim that the OP was an employee of his LLC, nor that he wouldn't suffer unintended consequences as a result of making the claim.

Failure to pay unemployment insurance can lead to jail time in many states. Quick search on Google yields an example for MA:

http://www.ehow.com/list_6306349_massachusetts-state-unemplo...

"Employers who fail to pay unemployment insurance premiums can also be ordered to serve time in a state prison."

You can search for the legislation on Mass.gov if you like.

I'm sure that if you refuse to pay when the state government escalates from reminder notice to nastygram to series of phone calls all the way to "takes you to court", and you do something that indicates to a judge that you were overtly trying to shirk paying, then yes, you could go to jail.

The point is that it's not relevant to the situation at hand, because 10 months before that could ever happen, the "employer" is going to get a notice saying they owe some trivial amount of money, and they're simply going to pay it to go away. You would have to be made of stupid to end up in jail over employment taxes.

Note that you're replying both to a lawyer (in dc's case) and to someone who's dealt with this exact situation (in my case); you may want bigger guns here than a pay-per-word Demand Media article.

If you are an employer employing employees, you have to pay your share of Federal and State taxes on their behalf, including FICA and unemployment insurance. Failure to do so will result in penalties that may include jail time. (http://answers.google.com/answers/threadview/id/775884.html). Back to the issue, if the "friend" insists that the op was an employee, he would have been liable for said taxes. Thus he would be incriminating himself. You don't have to be a lawyer to figure that out.

You put 1200 hours into this. If that is really true, that is 6-8 months worth of your time and investment. It's going to hard to just throw that out, and to be honest you shouldn't.

It sounds like your co-founder is extremely strong willed. This can make for a good trait if used well. On the flip side these people are not fun to work with.

  Who do you think would be more successful with the code?

  How can you generate value from your work?

  Can you opensource the code?

And then both of you can use it, and fork it? Most likely if you are a coder, having a well developed opensource project will do wonders for you being able to find your next role. And if you decide to start a company from the code via a fork, you could actually sell it because you are the original author, and you could dual license it. Since the code was not work for hire and there were no legal contracts as to the nature of the code you could probably do this. Get a lawyers advice.

Also since you are the developer behind the code base you can probably fork the code faster than your friend.

If your friend wants to buy the code from you, maybe you can do a rev share deal with your code and his business. There would be terms to transfer the IP, but I am sure you can figure that out if you need. In this case the code would stay private, and you would still have authorship rights to it, but he would have a rev share license to use and to derive from it.

I strongly thing that anyone that has asked you to throw out 6 months worth of work is giving bad advice, but this is a difficult situation and you can't expect maximum value out of this.

Your goal should be

  - get something for your time
  - part ways with this founder
  - leverage this experience and code base to find a new oppertunity

http://books.google.com/books?id=l3GD2EgazCkC&q=retreat+...

page 48 Sun Tzu - Without a way to retreat, an army fights with double or triple the spirit it would have on open terrain, because death is viscerally present.

If you offer your enemy a retreat they may take it.

He can't simply use the code he wrote, because his partner will have a claim on it.

Similarly, his cofounder probably can't simply pursue the business by having the code rewritten.

The best he can say is that he has something his former cofounder wants: a free and clear path to pursuing the business independently. Likewise, his former partner has something he wants.

It's worth talking that out, but if things gridlock, he's better off just doing something else.

It is evident that the other founder isn't wealthy and would have an equally hard time fighting this legally. Furthermore, it is evident that although the other founder may have a claim, it will be circumstantial at best. The op is in a more powerful position. It would be foolish to back down.

You are not the other founder by any chance, are you?

You're getting downmodded because of that last sentence.

With regards to the non-silly part of your argument: I actually agree with everything but the last sentence of your first graf. The poster here has "a good case". Would probably even win. The problem is: if the "other founder" wants to, he can trivially drag this out over ~18 months. During that time period:

* The business is going to suffer as this guy wades through pointless legal drama

* He's going to hemorrhage money --- money that could be plowed into company development --- on legal fees

* Under normal circumstances, nobody is going to consider investing in a company that is embroiled in legal drama over its ownership

* Even if he gets a favorable outcome in court (the odds favor this outcome but do not strictly require it), he'll probably still end up conceding some degree of ownership

He's been dealt 7 - 2. He's paid the blind. I'm saying that going all in on 7 - 2 is a stupid play. If he invests 18 months in developing a new company, his odds are almost certainly better.

He doesn't have to let the other guy "win"; he has the same axe hovering over the other guy's neck. The business is tainted; maybe they can do a buyout, but otherwise, they're both going to have to walk.

No, I am getting downmodded because my advice to fight on is against popular opinion. The reason for my last sentence is quite evident. You have written numerous comments advising the op to walk away.

Your argument that he cannot afford the legal fees and thus should not pursue the business is not well founded. Furthermore, he never said he was looking for investors. In fact, I am led to believe that the product is almost market ready and the op is able to dedicate the time to completing it.

The "friend" is obviously in the same boat financially as the op. Neither one can afford to drag out a court case for an extended period of time and the only incentive to do so would be if the software succeeds. In that case the gentlemen could settle favorably and still "win".

If you spent 20 seconds to figure out who you're accusing here you would realize how dumb suggesting Thomas is the other co-founder is.

That's not the point.

Well, the code was developed without a contract, and was never shared. IE. it was not a work for hire. It was not documented, even if it was implied.

He also never agreed to any trade secret documents or IP documents with his potential co-founder.

  did you sign any incorporation papers?

It's a creative work, and... although his friend that intended to start a business didn't do what was necessary to lock up the code either. they both foobared this.

It might be hard to start a business with that code, but I am pretty sure he would not be liable for damages if it was opensourced.

By this logic and after legal advice, if one were to open source the code, it would be usable by both parties, and he would still have the technical advantage.

This is the leverage he can use to control the agenda of the discussions. Opensource gives him an advantage over his potential co-founder, one that can not be undone.

Also, if both parties agree to keep it closed, then they might agree to some partnership in each others new company.

I would advise against the freeBSD or MIT licenses, a good copyright lawyer will know which license will still allow for a derivative work, since you wont want to use the code just as a library.

I have hacked on projects with friends and for a variety of reasons have decided to move on. These recommendations are part of how we have discussed how to amicably move on. We are still friends today.

We wanted to sustain value in what we did, but decided that building a business around the idea was maybe not the best idea.

The world would be a lot simpler if logic like this was sufficient to dispose of legal issues as severe as "someone who I call my cofounder believes he owns 60% of my business".

Lots of questions, a few answers:

A.) Yes, move on. Pack up all your work and put it in a safe place.

B.) Learn from it. In the future, all of the equity and administrative decisions should be made and agreed upon before writing any lines of code.

C.) While it might be satisfying to take your work and launch yourself (or hit him with a free service), think hard about it, and definitely consult a lawyer. It will be a sticky situation.

Point B cannot be overstated. You should always have your corporate structure in order before you start working on a business endeavor with anyone -- even people you know well. Forming an LLC with an easy-to-understand operating agreement might take two four hour chunks of time and will save untold headaches down the road.

"You should always have your corporate structure in order before you start working on a business endeavor"

Sorry, that just doesn't sound practical. Do all you people actually do this?

They do not, and that's one of the primary causes of problems like this. Just because it's the intelligent thing to do does NOT mean that intelligent people actually do it!

It sounds to me like it just introduces more friction to Getting Things Done, which would not be the Intelligent Thing To Do.

> I've spent over 1200 hours designing and developing and have a very strong vision for the product.

> I think my co-founder registered an LLC, but we've never agreed and signed any sort of partnership/ownership/nda agreement.

OUCH.

Sounds like there's something worth salvaging though, so why don't you two try and patch it up - maybe try to find a neutral third party or something? I think it might even be worth your while to jointly pay some kind of person who is good at mediating disputes to try and help you come to some kind of agreement.

I'd second the third party idea. If you both feel like there's something that could be salvaged, I think even hiring a professional mediator for a couple of hours might help.

> I think my co-founder registered an LLC ...

Why don't you go out and do a little research, so you will know for a FACT whether he did or not?

Why not just take the 60/40 equity split, but demand 50/50 voting rights? Or maybe do the opposite. Chances are he simply feels entitled to a bit more of the company, but if the company is successful that 20% difference in wealth will be fairly meaningless.

Or, maybe he wants 60% of the shares but doesn't care at all about many of the decisions.

Bottom line: Ok your partner is a prick, but he may still be a good business partner. There are also dangers in working with people who are too nice.

EDIT: Also it's worth noting that VCs are often spooked when founders don't have an equal share b/c that is a predictor of things going south as the company grows. Perhaps your cofounder would be moved by that tidbit to suck it up and be equal partners.

I'd suggest agreeing to the 60/40 split. He'd feel like he got what he wanted & you would launch your 1,200 hours of work. HOWEVER, would it be possible to structure the 60/40 split so that any shares handed out in future rounds of funding will come from his 60% since he is the "business guy"? If you can do that, then your minority % may become an equal or even greater % as the site grows & needs capital for expansion.

My project has me holding onto the majority of shares, but with the full knowledge that those shares will be the source of shares allocated to investors as more capital is injected. Unless he is a greedy bastard I don't see why he wouldn't consider something of the sort.

I would think that would lead to the OP being sidelined completely and screwed out of his 40% after a while anyway.

If you can't get to an agreement based on a 1200 hour chunk of input then you have a problem. No point in going further with this person.

Sure he could be sidelined if the paperwork is poorly drafted, it would all depend on how strong that 40% agreement is.

Really if he wants to get something for all that work, 40% of a project that exists is better than 50% of one that doesn't. Yes it sucks, but it is better than walking away. Whatever he does, I think the OP needs to paper up in a way to ensure the partner cannot dilute the OP at a greater rate than himself.

Ooh. I would have to agree with tptacek. You need to just move on. At this point the project isn't complete and is not even a business. To get a lawyer will cost money and you will be fighting over intellectual property.

I don't want to tell you not to consult an attorney but it will be a long drawn out process that will kill your creative spark and passion for the project anyways.

I was just talking with someone last night about how once money or vested interests is involved it is too late to sign agreements. It must be done first. Sorry this had to happen to you. I am sure you learned some valuable lessons that you can't learn in school.

Lesson learned. Move on to something else.

Doesn't sound like a good relationship to me.

I'd think you should get a good lawyer asap.

Odds are you do have documentation. Get all the emails, receipts, etc. you can find, the code (hopefully you have logs, etc. of work in source control, although I'm not sure if they'd know what to do with that in court or if would be admissible as evidence), and talk to people who could testify on your behalf.

The other option is to ditch it all, but it sounds like you are invested enough where you would rather make a lifetime enemy than give it all up.

Avoid further relationship with your "friend." Make sure you have good documentation/proof of the amount of work you've put in and what you've done in case anything goes wrong.

The partnership is spoiled; sounds like you have to part ways. But, without some agreement, essentially neither of you could go forward with what's been built -- an awful lot of potential to write off. (He doesn't have the code unless he sues you; if you went forward without him, you'd be in for some legal hurt.)

Try to think of mutual-resolutions that both split you up and allow someone to move forward. (In the meantime, sign nothing and 'reserve all rights'.)

Something involving a side-payment or non-dilutable passive share might work. For example: you agree to walk away and give him the code for a cash payment and 25% share of the company with no further obligations. Then, if it does take off, you've got a great claim worth pursuing, but in the meantime, you're free of the headache and able to apply your talents elsewhere. Or vice-versa.

If you do go this way, you might ask him to 'walk away' with a payment and passive share first. When he says that's a raw deal, then see if he'd offer the same in reverse. And, make the negotiated agreement ironclad/final with a lawyer's help -- rule out as much possible 'but the code isn't as promised' or 'we had to rewrite it all' later-claims. (Remember: when shopping for lawyers, you essentially get 30+ minutes free advice from each one you talk to!)

> When he says that's a raw deal, then see if he'd offer the same in reverse.

That's akin to what's known as a http://en.wikipedia.org/wiki/Buy-sell_agreement: One of you makes an offer to buy (or sell). The other must either accept the offer, or he can flip it around on you, in which case you must accept it. (This is akin to "you cut the cake, but I decide which piece I want.")

If you went that route, presumably you'd want to put the buy-sell agreement in place first, then one of you would make the offer. You'd want to think through which one of you should be the one to make the offer - that could vary greatly with the circumstances.

(Disclaimer, more or less mandatory for lawyers: I'm not your lawyer, YMMV, etc.)

So it comes down to ownership? The 60/40 split?

The design as it is now does not matter that it's all yours. You've gone through several iterations and the mock-up was his. The initial idea was his. You are a resource. A valuable resource but a resource nonetheless. The 60/40 tells me he thinks it is all his baby and that he can replace you. You confirm that thought. He doesn't want your code and will start from scratch which tells me he really doesn't like how things have developed.

Now, you say it could launch in a week? Is it a NDA or a non-compete that he wants you to sign? NDA means nothing at this point. You built it. Non-compete would mean everything as you could take the code and launch your own project if you believe in it.

You haven't been paid, haven't any signed agreements, and have done all the coding. Legally, without any documentation, it sounds like your partner would have a tougher time to prove ownership. What's in your emails?

So ultimately you got this: Partnership is dissolved. Nothing is signed.

Talk to a lawyer to straighten this out. Likely a mediation to determine ownership is required.

And learn your lesson for the future: Get it in writing.

First, congrats! It is a great achievement to have (effectively) single-handedly built your first startup.

If you're going to break-up, try and get what you can out of it. I don't think you should get lawyers or courts involved -- wait until there is real money (if ever) before taking that plunge. Instead, why don't you offer to have your co-founder buy you out? I don't know what you'd charge for contracting, but 1200 * 150 = 180k. If you make that a debt that he owes you due on a liquidity event in exchange for him having total ownership, then you walk away with nothing now (which is the most likely outcome regardless) but you do have recourse if he ever does hit it big. It is also the best deal for him, as there is a working and near-done system that he can effectively get for free -- if he has a big liquidity event, then he should be happy to pay you a decent contractor's rate. Write something simple up in plain english and include a note where you agree to binding arbitration, which should save you both some cash if you ever have a deep disagreement in the future.

1) Taking legal action costs money. Your product hasn't launched yet so it hasn't made any money yet either. He is either going to have to sue you with his own money or find a lawyer that is willing to work on commission for a product that hasn't made a dime. I wouldn't worry about his threats.

2)It seems to me that you've been very complacent with your co-founder up to this point which is why he thinks he can bully you with such a bogus claim. You need to politely say you've had enough of the abusive relationship and you wish him the best of luck.

3)Did you sign anything for the LLC? Anyone can put anyone else's name down when they register it online, but without a signature it's meaningless. Form your own LLC or S-Corporation and start learning the biz side yourself. Articulate exactly what you think you need a biz person for and start doing what you can. You'll get a better understanding of the expectations you'll have for the next guy, who may end up being an employee instead of a co-founder.

Good luck!

I am not convinced that if this went to court you WOULDNT get 50% at a minimum. A key buzzword in law is "reasonable". You guys had no contract in placed and never set or agreed to tentative terms. In the absense of that, I believe it is assumed that it is an equal partnership. The fact that it's a technology product and you did the lion's share of the work goes to your favor.

At the end of the day you dont want to work with this guy anyway. If you're bent on being reasonable, I would tell him that the terms are 50-50 and nothing less. If he wants to get a lawyer he can. Remember that he is in the same place you are in. He cant just go start another company because you have the same claim on the IP that he does. So in order for him to do it completely detached from you, I would think he needs your sign off, which you wont give unless he expressly terminates your agreement.

Hope this makes sense.

I wonder: this person is your friend, and he seems reasonable enough for you to have started this project with, so what's his side of the story? What's his rationale if, as you say, you've borne a brunt of the work?

This may well be the only side to the story, but something tells me there has to be more to it.

My guess is the friend is one of those people that thinks the idea is worth more then the work it takes to launch it.

> My co-founder had the "idea" for a startup.

I understand that, but it is also implied that the author iterated on a good deal of material provided by his partner and is now calling it his own. That seems a bit unfair also. I don't think we ought to prejudice the other party on the basis that he had the "idea." Yes, execution is more important than the idea, but it probably isn't that simple.

I'd be totally ready to render judgment if I heard the other guy use the idea argument but we need to hear it from his mouth.

Launch. If it gets traction and it looks like court is the only other option, make a settlement with him. Don't worry what is "fair" or about the work you've already sunk in. Just make sure it's worth it for you, get him out of the way whatever it takes, and move on.

First I would probably stop working on it immediately.

Then I would gather all evidence you have and create a full time-line of the project. From when it started, to who did what, what was previously agreed on, either via email or in person. Then it is time to talk with a lawyer.

Your idea has a 99% chance of failing so any chance so let him run the company. In the event it succeeds lawyer up, take a portion for free. Done. You win.

If you decide to keep the code for yourself, then you end up sweating it out with him, being stressed, and so on. Best to tell him good luck. I'm sure you're a smart guy so you'll find another adventure, so let that guy run with his pipedream, and just keep proof of the fact you built it, as I'm sure you have emails and proof showing equity division and so on.

Wish him the best of luck because ultimately if he succeeds you do as well (after the lawsuit), regardless if you split up or not.

You could always do a friendly "shotgun" clause tactic too.

If you can get a signed 60/40 contract with no vesting period, this might be the way to go.

Your co-founder launches it and then you quit with the equity. He can find someone else to carry on the code. If he's successful, then so are you.

Good luck. I've been where you're at. It ain't fun, but life goes on...

No advice; but, man, I feel for you. I was in almost exactly the same situation four years ago. I just let go, signed that 3 month NCA, cut the losses and moved on -- never looked at that code again. He wasn't very close friend of mine, fortunately.

He was going to hire a coder and proceed with the project; as far as I know, it didn't quite work, and he never launched. Not sure, though -- we don't talk much these days :)

Looking back, I'm glad I've got out of those toxic relationships. Yeah, seeing your invested money and efforts going to waste is not a piece of cake, but, really, having to deal with a toxic partner on daily basis can be much more of a damage.

You should explain to him that you are just as capable as he is to take legal action which would put a nice big hole through his funding possibilities. Then, offer to either sign something that says you owe each other nothing and that you are free to do as you wish with the code you wrote. Or, tell him he can pay you to sign the NDA. If your product is good, it's probably not because of the idea. It's probably because of the execution. If he is willing to pay you enough so you can spend 1200 hours on a new product idea. Go for it.

How I can feel your pain. The same happened to me in a different scale: "partner" wanted 100%, but the situation only lasted 4 weeks.

The BIG lesson from my and your story is: BEFORE starting to work on an idea, BEFORE even discussing an idea, discuss what "partnership" means to each other. Some people's concept of "partnership" might surprise you.

My little story here: http://news.ycombinator.com/item?id=1732039

to be honest, if this guy hasnt touched the code, given any money, registered anything, then i really don't see what IP he has. an idea is an idea. that is it.

He has whatever insight he claims he's informed the development with, along with whatever marketing awareness or lead gen work he claims to have done, along with any design or copy writing assets he can claim to have added to the project.

In other words, he has enough to take the issue to court. That he's unlikely to win in court is completely irrelevant; court cases can take years (the last case I was involved in didn't get an initial hearing for 7 months after we filed) and are ludicrously expensive.

I would strongly suggest a mediator, or a group of mediators. I don't think you need lawyers, but other people whom you mutually select in the software business would be good. What's the revenue model for the startup? Will you need to take more funding or do a lot more work in order to get to minimum "buyable" product? If I were in your shoes, I'd try to figure that out frankly before deciding next steps.

The most important question you both need to answer is which is more important: Friendship or the business?

If it's friendship then don't involve lawyers (that will almost certainly end it) and find a way to part under terms such that you can remain friends. In this case don't worry about plus or minus ten percent. It won't matter. Go your separate ways and preserve your mutual peace-of-mind.

Ouch, some friend he is. What I'm wondering is why the split was never declared before you started working together?

We've gone back and forth many times. It's hard to decide on equity when circumstances change. Also, I recently discovered that we are at pretty much at step 0 in terms of business/customer development. I thought my co-founder (who never really tells me what he is working on) had made progress but I found out recently that I'm expected to jump right into sales with him once I'm available to do so.

Sounds like you and him have never worked together before. There is an entire lack of communication, and I think your ignorance or lack of persistence is partially to blame.

Lesson learned though, good luck.

I thought my co-founder (who never really tells me what he is working on) had made progress

Discovery, will ferret this out in court and without a patent, who came up with the idea != an equitable consideration in the eyes of the court. If he truly has not done any or little work you may walk away with a larger stake than he is looking for. Exploitation is frowned upon in most courts.

>> Why the split was never declared before you started working together?

> We've gone back and forth many times. It's hard to decide on equity when circumstances change.

No it's not, it's easy.

I've always felt that two or more people involved in a business like this should share equity in relation to the number of hours they have actually worked, adjusted for any cash they have invested in the business.

For example if neither of you have invested cash but your partner has worked 400 hours and you've worked 1200 hours then the split is 25/75 in your favor. Simple!

The split changes as the ratio of hours changes or as the partner's cash investment changes, but the basic agreement here is that each partner's time and/or money is equally as valuable as that of the other partners. If one partner stops working completely his share will continue to shrink as the other partners continue to increase their relative shares by working more and more hours.

This IMO is "fair" because no matter what, it's the hours the two of you have worked that determines who gets the most, with cash investment considered too of course.

I told my brother this years ago when I had already invested 700 hours in a new business, as well as five thousand dollars in cash. He saw the potential of my venture and he wanted to jump in with a 50/50 deal immediately. I said no, I've invested 700 X $50 = $35,000 in labor and $5000 in cash so I'm ahead of you by $40,000 -- so here's how we will do it:

My share right now is 100% and yours is 0% but you have the right to invest cash or time (valued at $50 per hour) in order to catch up to me. When you've caught up by investing as much time and/or money as me then we will be equal partners, but until then we will use this sharing ratio to determine who owns how much of the business.

It's a good system that rewards partners for their actual contributions instead of some pre-conceived notion of how much each one might be worth relative to the others.

Do not under any circumstances sign anything. Copyright (http://www.copyright.gov/register/index.html) your code immediately. Then play hardball. Tell him you feel that you have done most of the work and want 60% or you will go your separate ways.

If he is threatening legal action, take legal action first. File a complaint if he even touched your software. (Uploads it to a server, tries to give it to another developer to reverse engineer, etc.). Don't say anything in email or verbally that you may regret later. In fact, assume that when you talk to him, whatever either of you say may be used in court.

Start going it alone right away. Try to market and sell the product by yourself. Your wrote it. Its yours. He might try to take you to court over this in that you had some "verbal" agreements wrt a joint venture and he probably has some emails to back him up (M. Arrington et. al.) so it is imperative that you either placate him or take legal action first.

Maybe consider a mediator? It seems like everyone loses if the code just goes down the drain.

One option is this: destroy the code (actually make sure there are 0 copies left). Then mourn (get drunk or something, or take a trip), and move on. Destroying the code might help, psychologically, to let go. Just throwing that idea out here :)

"start from scratch again by finding a co-founder or hiring a developer to build his idea." more likely than not means he is taking you for a ride.

I hate to say this, but you need a lawyer.

Cease working on the project until the situation is resolved.

Package up everything you have related to this, mail, I/Ms, code, everything. Any paper notes, any receipts, anything you did to track time. Document everything, make several copies. Don't delete information which is inconvenient or contradictory to your story, if it's digital it already exists somewhere else anyway.

The conflict may not be resolved in your favor, though the lack of any written contracts, ownership agreements, etc. is going to be a major stumbling block in any litigation against you.

Establish a fair value for your labor, what was the opportunity cost to you for the 1200 hours you worked on this instead of getting paid? Don't go nuts here, if you get paid $50/hr for contract work then that's a reference for a dollar value for your time.

Establish a value for —for lack of a better term— your good will: the intangible contributions, ideas batted about, subtle shifts in the product/business strategy, and your ongoing contribution of such.

Finally, how much would you take to walk away, handing over the code, all rights, etc, for zero equity, zero credit?

Now, ask yourself some questions:

- what's the value of the product overall today? Is that based on real revenue? potential revenue? pie-in-the-sky valuation? sum of all labor/expenses?

- is your friendship with your co–founder worth more or less than the "potential" monetary value of either the 50% or 40% equity stakes, or the sum of your contributions and your walk-away value?

- is the relationship truly poisoned? Can it be rehabilitated? Can it be rehab'd with you working together? Or would it be better for you to split amicably?

- is any of the monetary value at stake worth more than the potential cost to litigation? Or than the personal cost if there's a bitter split between you?

- would you have come up with this idea, put 1200 hours into it, without the cooperation & dialogue with your co-founder?

Talk to a lawyer, learn what your options are.

Possibly talk to your "co-founder" about mediation, bear the expense equally, it'll cost less than either litigation or years of bitterness.

If you have the code base, you have a lot of power. The worst thing you could do right now is launch the product without having this conflict resolved.

I walked away from a startup after 18 months of work when the founder changed the terms of the organization of the company drastically. A number of us had worked together previously, and worked for that 18 months on mostly a handshake. We're on cordial terms now, years later, but not what I'd call friends. My lesson learned there was: if the ownership structure isn't documented promptly and up front, you don't have a startup, you have a lawsuit waiting to happen.

This got me thinking, which is always a bad sign.

One possible way to "timestamp" your entire code tree might be to zip it up, cryptographically hash the result, and then print out the hash and physically sign it with a notary.

I have no idea how legally useful this might be. I'm sure it would be legally difficult to explain. :-)

and will cost $10-$20 in the state of California every-time you want to time stamp it.

  sounds cumbersome.

I've wondered before about whether posting an MD5 hash of a snapshot to usenet or a bunch of free mail services (Gmail/Yahoo/Hotmail) might serve as a "beyond reasonable doubt" method of proving you had a specific bunch of files on a particular date. It _should_ be possible to argue that the likelihood of me being able to subvert Google's and Yahoo's and Microsoft's mail servers all at the same time is effectively none, and subverting every usenet server in the world even smaller.

I know where I come from (NSW Australia) there's already established legal recognition of MD5 hashes, they use them to verify authenticity of traffic enforcement camera data.

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You have two options:

1. Lawyer up.

2. Walk away.

Either way, it may be helpful to at least see a Lawyer first.

Get a lawyer

From NOW ON:

1. Any startup, get an agreement up front. Do not wait until something happens.

2. do not write code without a contract, ever.

3. Do not start a startup whereas developer co-founder code is hidden form one of the co-founders..ever.

For right now You need to stop all work and get a lawyer. Pick one that has some mediator skills

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