[trueneverland]

You guys should have had vesting in place. I am going to guess you didn't. Vesting is designed to protect founders for this very reason. Typical vesting is usually 4 years to earn the full 100% of their vested shares with a 1 year cliff.

So to break this down, lets PRETEND (i.e. example scenario) you guys started out as 50/50 partners. The way vesting would have worked would be, for simplicity sakes, let says there are exactly 100 shares and that suppose you both had vested the full term (4 years) and stuck it out, you both would have 50 shares each.

Typically if anyone leaves sooner, the way it works is, if you leave before the first year (hence 1 year cliff), you leave with zero equity. At the 1 year mark, you earn 25% of your vested stock (1 year of 4 year vesting period). That means 12.5 shares of stock (1/4th of your 50 shares). From that moment on, for the remaining 3 years, shares would vest 1/36th of the remaining share for each month that goes by.

Thus at the end of the 4 years, you are fully vested. In this case, I would treat this the same. You would need to do a termination agreement (you should talk to your attorney about this), give him any vested shares he would have earned or if he is leaving before he's been there for a year, and give him some additional compensation for the termination agreement you think is fair (not stock; usually cash). In either case, you are recommended to do a termination payout whether he gets stock or not.

Talk to an attorney!