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A friend and I have been developing an application which will be used as a startup venture. There is a considerable amount of work to be done. We have not set up any legal framework, business not formed yet, however he has walked away and shows little interest. I would like to offer to buy him out and continue to build the business myself. This means buying his half of the application designs, documentation, code, stylesheets etc.

I believe he may be receptive to this but wonder what legal documentation would be required that he cannot return in the future and lay claim to any part of the business?

Thanks.

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2 Answers

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If your business isn't actually trading yet, what you have both done so far is worth very little.

I was in this position a few months ago, and when I talked to my partner about it, she actually wanted to walk and didn't want any equity or payment for what she had contributed so far.

In resolving this, you will want to think about your relationship and what each of you has contributed and also talk about it together to come up with something that is fair to both of you. You may find your partner just wants to move on, or that he wants some payment.

If it was me and my partner wanted payment, I would try to negotiate that I would buy his work for an amount consisting of

  1. a lump sum equivalent to decent hourly rate - to pay for the time he spent
  2. a bit extra, as good will and a pay off for the future potential (which hasn't been proved yet.)

You could either negotiate for this to be paid once the startup is trading and solvent (which would be my preference) or pay for it upfront.

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Thanks Susan. My partner has asked for exactly that, an agreed lump sum to be paid when and if the business makes money. With your partner walking did you have her sign a waiver of any rights? Yafit's advice in response to this question suggest this would be wise: answers.onstartups.com/questions/221/… – geoff Jul 13 '10 at 11:00
Thanks Geoff. No I haven't got her to sign anything yet - and yes, it would be wise! :) It's great that you have been able to resolve your issue so quickly. Now to get it down in writing and continue building the startup! – Susan Jones Jul 14 '10 at 13:33
up vote 1 down vote

Obviously, the best suggestion is to get legal advice.

If your former partner is receptive and wants relatively little in return, you should make sure to at least try to write up some simple agreement:

X agrees to sell all of X's interest in COMPANY (including but not limited to --IP, code, documentation,etc.) for the sum of $ZZZZZ

Ideally you should get this signed in writing, and at the very least via email.

You can find a lot of sample legal documents on DocStoc, make sure you look for examples in your Jurisdiction as the laws are different...

Good Luck!

Disclosure This does not constitute legal advice

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Hi Jeff and thanks for your response. If I could accept both your answers I would but I'm going to prefer Susan's simply through her personal experience which as it turns out matches what is currently transpiring. – geoff Jul 13 '10 at 10:55
Geoff, no worries. Glad that you both came to a resolution! – Jeff Epstein Jul 13 '10 at 12:56

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