My two partners and I are each 1/3 equal owners of a startup LLC. After a year of work, I decided to leave and told my partners. They in turn say they will issue additional shares to themselves and effectively dilute me down to 0. Is this a case of breach of fiduciary duty?
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Additional details: 1. the Startup is pre-revenue and pre-funding. 2. According to the OA, there is no mention of a vesting schedule and it clearly states exact number of shares owned by each cofounder 3. If it is a breach of fiduciary duty, what should I do? Do I have to contact a lawyer now or can I wait? 4. If it matters, I decided to leave b/c we all agreed that my partners and I could not work together effectively - a personality difference. I geuss the question is, is there anything I can or should do to defend my vested interest in the company?
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Answer:
No, it is not necessarily a breach of fiduciary duty, but depending upon the terms of your operating agreement, it may be a breach of contract. One of the most important aspects of an operating agreement established for a company with shared ownership is the process whereby ownership can be sold in the event that partners opt to go their separate ways. One of the cleanest, most effective ways to address partners going their separate ways is integrating what is sometimes referred as a push/pull clause in the operating agreement, under which the announcement is made that one partner wishes to dissolve the partnership, setting into motion the process under which the exiting partner offers a set price for his/her share of the business, which the other partner(s) are then forced to either except at that price to buy out the exiting partner or be paid the appropriate prorated amount fo sell their share of the business. (This is like the old conventional method of letting one child cut the remaining piece of cake "evenly", while the other child gets to choose which piece for himself -- a mechanism that forces "fairness".) Regardless of what I think, or what anyone else answering this question on Quora thinks, you are highly advised to seek qualified legal advice on this question.
Patrick Driscoll at Quora Visit the source
Other answers
I'm no lawyer, but having been part of this situation in the past, I can tell you that it's easier to just be nice about this. Divorces are messy, and so are the breakup of partnerships.... but the difference between divorces and partnership breakups is that you can live the rest of your life without interacting with your ex-spouse.... depending on your work situation, it's likely that you'll run into your ex-founders some time in the future... it's best for you to be the person who takes the high road and move on..what goes around comes around, it just takes time. Regardless, if they make something of themselves in this venture, they'll get plenty diluted down by the Angels, Accelerators, VC and ultimately public companies that buy them or their product. You'll be onto your next thing, be happier and maybe will get some change in your pocket so you can buy your kids a new bike or maybe even a pool in the backyard. If you really want to fight this out, then depending on the state jurisdiction of your LLC, you can bring an oppression remedy only after they've actually issued the shares or acted in appropriately... and then you'll need to open up your wallet and pay a lawyer tons of money. Best of luck to you.
Blair Carey
Check your agreement when you formed the company it should out lime exactly what happens to the shares if a founder leaves the company. That agreement is essentially your prenub.
Claire Boger
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