March 8, 2022

Five Tips for Co-Founder Disputes

A good part of my practice involves disputes between company co-founders or co-owners. Although people seem to think I’m crazy when I say this, it’s a type of work I find particularly satisfying because it requires a combination of legal knowledge, problem-solving, and empathy.  

As a result, I’m frequently asked for advice about what to do in this type of situation. While there’s no perfect answer, here are my top five tips:   

One: If you have documents governing the company, you need to review them. Ideally, there’s a written document that says how the company and its owners are supposed to operate and that document addresses your circumstances.

If that’s not the case for you, don’t panic! This is very common. A lot of people never get around to documenting how a company is going to operate.  

In the absence of a formal agreement signed by all of the company’s owners, there are some other sources that may clarify things. For starters, the law of the state where the company was formed may provide some guidance. In addition, emails, texts, and other communications between co-owners, as well as past practices, can also help fill in gaps.  

Two: Recognize that even if you have straightforward and clear documents, there’s almost always a significant human element involved in resolving this kind of dispute. This means it’s important to be clear about what you want and what you’re willing to give up. For example, is your prime goal ousting a co-founder or co-owner? Or, are you more interested in reframing your relationship and setting up new lines of communication? Do you simply want to exit the business and move on from a relationship that has become toxic?  

Three: Think about what you want to do if you can’t get your preferred outcome and develop a list of priorities.

Four: Consider the possible roadblocks to a resolution. Some are obvious — having enough money to buy out a co-founder or an operating agreement provision that requires unanimity. Others are less obvious. For example, are you concerned about letting go and moving on to the next thing? Is your co-owner someone who enjoys fighting? 

Once you’ve identified these roadblocks, think about what you can do to remove them or lessen their impact.

Five: Work with a skilled professional or professionals. This can be a lawyer, but it can also be a mediator or a coach. The important point is that you have an outsider who can serve as a sounding board and suggest options and different strategies.

Please reach out if you have any questions.