How should I do my project?

How does one properly fire a person working on an un-incorporated project?

• Two people are working on a project together for a few months. Person 1 is full time and wants to continue the project without person 2. Person 2 is part time. - Nothing signed by either person. - No company formed. - No funding. - Two applications to accelerator programs filled out, one indicating a proposed equity split (conversation of which lead to this situation). Person 1: Full time programmer on project. Written all code on project. Designed ~50% of the project. Has ~9-10x Person 2's hours into the project. Found Person 2 a couple of months after starting the project. Small amount of cash in project (<$1k). Working on project for 8-9 months. Person 2: Part time designer. ~10 or less hours / week on project. Did not write any code. No actual cash in the project. Working on project for 6 months. Questions: Person 1 no longer wants Person 2 working on the project. Is there a legally binding partnership? Is the code owned by person 1? Or by some unintentional partnership? Is the equity split on the accelerator application binding? Or, is Person 2 entitled to the application's proposed equity split moving forward despite not being involved? They planned on having vesting schedule for equity with 1 year cliff, vesting from beginning of full time effort (not written down). Person 2 is threatening legal action. Does he have grounds? Many people have been telling Person 1 to redesign Person 2's work, and not use any of it at all. Is this possible? Could this be a legal issue moving forward?

• Answer:

  Obviously have to tell you that most of these questions will depend on the facts and the law of your particular state.  If your co-founder is threatening legal action, it's probably time to talk with a lawyer.  Also, these problems show how risky it is to build a business without a written agreement setting out the rights and expectations of the co-founders.  A few general principles that would come into play here are the following. 1)  Did you form a partnership?  A partnership is generally defined as "an association of two or more persons to carry on as co-owners a business for profit."  It doesn't require and written agreements or filings with the secretary of state, and can be created even if you don't intend to form a partnership.  2) How do you end a partnership?  Generally you can end a partnership by giving your partner notice of your intent to do so.  If you've already told the co-founder that you are not interested in continuing the venture with him or her, this likely terminated the partnership.  If you are serious about ending your work with this person, it probably makes sense to give this notice in writing (before continuing to work on the project).  3) Is the code owned by the partnership?  Intellectual property developed to benefit a partnership is generally considered property of the partnership.  4)  How will the property of the partnership be divided?  The usual rule is that, unless you agree otherwise, partnership property is divided up equally among the partners when the partnership is dissolved.  If you and your partner agreed that partnership property was going to be divided up a certain way -- i.e., the equity split -- you might be able to argue that this is how the assets should be divided up when the partnership is terminated.  5) Do you need to redesign the co-founder's work?  The co-founder's work probably also belongs to the partnership.  So, the business going forward will have the right to use the design. In this situation, it is probably best to sit down with the co-founder and try to negotiate a solution that lets you continue operating the business, with some small payment (or share of equity) going to the co-founder.  While you might go into court to have the assets of the partnership divided, this is going to be extremely expensive, compared to what the business is now worth.  The co-founder would be spending a lot of money by suing and probably would not get much in return.  Because the business is just getting started, and presumably is not worth a ton of money right now, it makes the most sense to work out a solution before continuing on the project. In response to your comment:  1) How would IP be divided up?  If you cannot work out an agreement with this person, generally you would not divide up the code.  Instead, one of two things will usually happen:  a) you buy out the co-founder, giving him some amount of money in exchange for the code.  This is probably the best solution for you, since you want to continue the business. b) you sell the property of the partnership (in this case, the code and design, etc.), and then pay out the proceeds according to your agreement of how to divide the profits of the partnership (either 50/50 or according to some other agreement).  This is not ideal, since you want to continue the business. You may have to go into court to resolve this if the other party won't agree, but, again, it's going to get expensive. 2) What to do if you cannot reach the person? You can still go into court and ask the court to supervise the dissolution of the business and the distribution of assets.  This is probably a last resort for the reasons discussed above.This answer is not a substitute for professional legal advice....