I’m relatively young (22m) and I run a SAAS company with two business partners (3 including myself). I started this company about nine months ago, and it’s been a long road to get to where we are now, but we are at a point where things are getting really serious and we are doing really well as a company. By the end of next year we are on track to being a multimillion dollar company if we keep growing at the rate that we are now. The problem is that I started this business with my two business partners, and one of them is great (Steve). He helps me with everything; he’s the CTO, he’s extremely talented as far as it goes with software, and he’s extremely eager to fix issues and streamline the company along with me in order to push us in the right direction. On the other hand our other business partner who was a very key part at the beginning of the company and approached Steve and I with this idea and told us about the entire industry, has been sleeping all day, making promises to clients and then not delivering (which has caused a lot of our clients to question our abilities), doesn’t contribute to the business at least 70% of the time and as far as roles go he doesn’t have one that couldn’t be replaced for a fraction of what we pay him or couldn’t be handled with little to no added work by Steve. He also has a false idea of what being an entrepreneur looks like and posts all day about going to the gym and parties and talking about being rich while leaving Steve and I to do all the work. I know one of the biggest things people are going to bring up is “Well, have you tried talking to him?” and the answer is no, I haven’t. He sends me to voicemail 90% of the time I call him and hasn’t come to a meeting in a few weeks. Anytime I talk to him about his productivity, he says, “Let’s just look into hiring someone to do my job,” but it’s a very simple job that could be handled by one of us, so at that point, why would we even want to pay him 33% or even at all? He is a really good guy, and he is a good friend. It just isn’t fair to me or Steve that we have to do everything, and we’d like to not have to rely on him to make decisions, especially since Steve and I both work all day and commit our lives to this business. We would however like for him to leave on good terms, and we’d like to let him keep some share of the business (~10%), but we just don’t want to deal with this anymore. Note: we haven’t formed an LLC yet, and in theory I could just tell him that we don’t want to work with him anymore, which we don’t want to do, and we’d like to be fair. Steve and I just started talking about this a few days ago because he’s starting to get to the point where he’s rude and doesn’t understand why we’re upset with him when we do talk to him. He’s a good friend of mine, and I’d like it to stay that way, although he isn’t being fair to us because he doesn’t do anything. But then again, I don’t see him being too fond of the idea of being bought out because “it was his idea”. I’m just at a point where I don’t know what to do anymore. We’re about to hit our end-of-year goals, and Steve is considering dropping out of college to pursue this full-time, so the extra money would be very beneficial. Thanks for your advice, and I’m not trying to “play victim,” so if you have any questions, comment below and I won’t have any problem answering them. Steve and I are far from perfect, but we still do everything we need to every day in order to keep things running. Thanks!
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Echoing what u/isprobablyatwork said, but going to add on that you would also do well to identify a business mentor to help guide you through some formalities and point out some pitfalls along the way. I have a few in my network if you’d like some recommendations — my dms are open. I’m mostly retired now so not pitching myself for the gig, but man I would have loved to have been in your shoes at 22. If what your statements are accurate, you could really be sitting on a great opportunity and you don’t want to spoil it on legal woes.
>Note: we haven’t formed an LLC yet, and in theory I could just tell him that we don’t want to work with him anymore, which we don’t want to do, and we’d like to be fair.
I’m sorry, WHAT? You are in a position of contemplating a multimillion valuation, and you are going completely bare? Son, you already done fucked up.
You are, at this moment, in a general partnership with this dude who is about to hate your guts. Because that’s what happens when you agree to an open-ended venture without registering anything: it defaults to a general partnership.
So now you have to go about fixing it, and here is the approach I suggest: You do not tell this partner you are buying him out or that you don’t want to work with him anymore. You tell him that it is time to formalize the terms of the LLC because it is a necessary step towards growth - which is true. Then you tell him that everyone is going to have to either make capital contributions or make certain work commitments for their share of the company. Since it was his idea, you and the other founder are going to front him 10% as though his idea were a capital contribution, but if he wants more than that, he’s going to have to contract up and commit to some real work.
Then you get a lawyer to formalize that agreement, and you commit yourself before God and man that you will never again go this far into a business venture without a real contract or an incorporated entity.
If they want to take investment, they should incorporate it as a C Corp.
All three co-founders need to sign a restricted stock agreement. The restricted stock agreement will make it clear that if someone gets terminated for cause their unvested shares will be clawed back.
Each of the three parties signs a contract assigning their existing contributions to the company.
Lawyer up. This gonna get ugly.
Yep. I don’t think he had any idea. But op is young. Good learning experience. I’m going thru something a bit similar, but I’m old, 63. Have 4 co-owners of a small retail cre strip. I’m the only one who does work. I’m paid for it, but I can’t bill for ALL my time. We can’t afford it. Co-owners (in Their 70’s) r sick of me saying “no one does anything, I don’t have enuf time to do all the work, etc.” I’ve made these ppl $$, they’d prefer to sell& get the proceeds. I’m getting closer to selling, but still looking at @ 2 yrs. I’m making some $ & hopefully property appreciates some more. I’d buy them out, but I simply can’t pay these ppl who do nothing, the current price, @ 2x+ what loan is amt. & I created that bump in value. I kno some will say, ‘just buy them out’. But, my head tells me costs will rise & tho we r cash flowing, when bad stuff comes around, it can get shaky. DO NOT HAVE PARTNERS, CO-OWNERS. THINK OF ONLY YOURSELF!! All GL!
First of all, congratulations on being where you are. Steve was smart, basically implying a partnership and setting you up for doing work after doing his initial work. You need a really good lawyer, hit me up, I can refer you to a couple.
You did pretty much the worst possible thing in terms of formation and vesting schedules, etc. You now need a very good lawyer to unfuck this situation. You shouldn’t speak to the person you’re trying to oust before speaking to your lawyer. Everything you put in writing can be used against you. Probably zero chance he accepts anything less than 1/3 of the company, if not more. You’ll have to start over if you want him out
So your on the edge of a multi million company but don’t have an LLC or anything registered. How are you guys paying taxes? Is this like the lawn care businesses? If your trying to be professional this should probably be on your priority list.
Furthermore if Kyle didn’t front the idea then none of this would have happened. He definitely shouldn’t get completely fucked over here. 10% seems reasonable. So right now you guys are splitting profits 33% 3 ways, definitely need to figure out a way to make taxes hurt the least. You mentioned Steve is the CTO, and are you the CEO and Kyle is just the founder? If that’s the case then giving him 10% and being hands off seems fair.
This sounds like a steaming pile of shit. These black and white pictures people like to paint in these posts are usually done with ulterior motives. In this case, I think OP and the CTO want to eat up the IP and are creating paper-trail of their “concerns” with the person OP keeps shitting on. OP and the CTO have figured out that it’s going to get big, so time to start concern trolling the third partner into exiting, make a social media post or two for the lawyers to eat on.
Also, the “stream of consciousness” writing tells me exactly how OP thinks. Not a good look.
I am confused, you are 9 months into business as a company and you don’t have a company legal structure?