[tatsuke95]

>"Now, IANAL, but to my knowledge this is just patently false and represents a complete mischaracterization of the purpose and legal implications of a corporation."

So, these guys filed the paperwork and were running a corporation, rather than just a business partnership (you realize there's a difference)? Before they even had a business model? Again, that's ridiculous and a complete waste of resources at an early stage start up.

>"This sort of situation occurs all the time in small businesses and often leads to their demise."

Really? Do you have source for this assertion?

>"You are doing a great disservice to anyone who takes your advice."

Oh, spare me. You realize that these guys essentially followed what you recommend doing, and if it wasn't for the co-operation from minority shareholders would have been stuck with dead weight partners owning part of a business in which they did not participate. Establishing an equity arrangement before they knew what they hell was going on in the business was the cause of this problem. If there was no formal agreement, no partnership and in the end no business, none of this would have happened. The two founders would have moved from Dropcard to Ecquire, and the old co-founders would have no claim on the new product. Just as a reasonable person would expect.

But by all means, have people heed your advice, and form corporations before there's a business model, so that the shareholders have a claim on anything you do in the future. That's spectacular advice.

[aneth3]

I am not suggesting people form corporations as a first step, only that they come to a general consensus on equity and commitment as early as possible. Personally, I've had long discussions with potential cofounders who suggest exactly what you say, and when pushed they offer 2% because they are the great idea and execution genius who can pull funding. All those people failed to find competent partners or raise money.

Had these founders not had an agreement, corporation or not, the founders who left would continue to have a very substantive claim on the business as part of the partnership.

You can read here about what happened in one case when this went wrong:

http://www.milwaukee-business-lawyer.com/what-happens-when-o...

Courts hold that a partner who leaves a business lacking an agreement does not lose rights to their portion of the business. If it can be proven that there is absolutely no relationship between the old and new product, perhaps it could be shown that a new partnership was created. This is not a lawsuit you want to deal with.

That is why pretty much anyone giving competent advice instructs partners to decide how they should split equity and on a vesting agreement ASAP. That doesn't mean these agreements can't be changed as commitments and roles evolve, but the existence of an agreement makes those conversations necessary. Without one, fundamental disagreements often lurk.

Over and out.

[tatsuke95]

>"Courts hold that a partner who leaves a business lacking an agreement does not lose rights to their portion of the business."

So what is the big worry?

That is exactly what I have said throughout this thread: you don't need to have a formal agreement to protect your stake in the company. The courts will protect you from being screwed out of something you're entitled to. Which is why I disagree that it is so vital to get an agreement in writing as soon as possible, before you even know what the business is. That's what happened in the original article, and that's what my hangup is, and that's what I've been commenting on.

Yes, I agree, you don't want to be in a lawsuit, but having a formal agreement does not prevent a lawsuit if you have an equity dispute, nor will it supersede reason or rationale in a judgement if you end up in court.

>"Had these founders not had an agreement, corporation or not, the founders who left would continue to have a very substantive claim on the business as part of the partnership."

As they should! If they produced work or contributed money, and the business grew and provided income they have a claim on that income.

>"That is why pretty much anyone giving competent advice instructs partners to decide how they should split equity and on a vesting agreement ASAP."

Well, that's nice. It's also why there are 2 person shops running around the Valley, with someone titled "CEO" (but no board), calling themselves "businesses", taking in investment money but not producing a nickel worth of value, ever: priorities are often out of whack.

Agree to disagree, I guess. I'm not here to offer anyone advice. Nor do I care that while I'm working on solving problems and investing in others that are doing the same, competitors are in-fighting about their equity.