The advice to get a lawyer is sound though. Unfortunately we don't have a lot of money and what money we do, we would prefer to pay our handful of employees with. We are not profitable.
But I do have some friends who went to law school. So I'll ask a friend pro bono.
As you can imagine, any legal step would be a huge distraction, and as a startup that really hurts us.
> My cofounder is a solid guy. I would trust him with my life.
Good guys can mess things up unintentionally. Consequences on things this big can affect your life forever.
> Unfortunately we don't have a lot of money and what money we do, we would prefer to pay our handful of employees with. We are not profitable.
If you are in US there have to be several organizations to give you free advice on similar matters. I bet they even have 1-800 numbers.
> But I do have some friends who went to law school. So I'll ask a friend pro bono.
Good start.
> As you can imagine, any legal step would be a huge distraction, and as a startup that really hurts us.
Take this as training. Surfing the legal ecosystem is part of entrepreneurship. Ignoring this costs (in both time an money) can cost you more than your investment. Be smart.
I dealt with exactly the same situation but not in US. People doing that in the open tend to have a network of support. Do not underestimate the consequences of your (or your cofounder's) actions. Watch out.
Hope your situation turned out o.k.