Co-founder wants to leave, do I pay him back the money he invested?

[fernandose]

my co-founder and I have been working on a business idea, where we both invested money into getting it to a MVP stage, it hasn't been launched and does not any money. It is basically a modified wordpress site with no IP. Costs consisted of hiring developers and paying server costs. Since i had 60% equity, I therefore payed 60% of the total costs and he payed 40%. Also worth noting, he still owes money (<$400) for some unpaid costs.

Since he now wants to leave, should I pay him back all the costs he put into the business? (we have no contract/agreement stating our equity split)

[Tzunamitom]

Technically speaking he's entitled to 40% of the company's value. In this case it might be very hard to assess the value of your assets (the modification of the Wordpress site may well have produced IP in itself).

You probably DO have a contract stating your equity split - in UK law it is not necessary for a contract to be written in order that it is enforceable. If he were to seek redress in the courts, a likely outcome is that they would order the winding down of the company and he would be entitled to 40% of the proceeds (if any), less the outstanding capital he owes the company.

But you're asking what you should do, so I think the easiest option in this case is to come to an equitable agreement with your co-founder that you are both happy with, and save yourselves a lot of hassle. If necessary bring in a neutral third-party "arbitrator" (mutual friend or someone you both respect) to ensure this is done fairly.

DISCLAIMER - I'm not qualified to practice law.

[PhillipT]

It is worth being aware that contracts are either express or implied. An express contract is one where the terms of which are stated in words. An implied contract is one where the existence and terms of the contract are manifested by conduct of the involved parties. A contractual agreement can be oral and in many US states (for example California) and Countries (UK etc) it is enforceable - especially if there are witnesses or proof of joint activities etc. Your best bet to get out of the situation is follow Tzunamiton's good advice and find someone you both trust and that you can both agree as an impartial adjudicator. Then discuss with the adjudicator to either wind the company up or get a written termination agreement that you are both willing to sign. If you want to pursue the idea then the termination agreement between you and your former partner must set out the payment terms and limit or sign away any future claims against the idea/ip. hope this helps.

[mirsadm]

If you want to pursue the idea then it is best you pay him and write a contract. If the business starts to succeed I have no doubts that he'll be coming back for his share.

[fernandose]

and if i don't intend to pursue the idea?

[Tzunamitom]

Wind down the company and give him 40% of the assets, less what he owes the company.

[harshajmera]

I would suggest if he has now decided to leave, better think of long-term. Pay him back the money and get a new partner (if required) and this time put it down on papers.

[ggalan]

pay him back with the companies profit, not from your pocket

[fernandose]

the business isn't making any revenue.