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A little background first - I am a co-founder on a small software startup that was founded in 2009. I am the developer while my partner (who came up with the idea) handles the business side of things.

Overall - our relationship is very brittle and I think trust is a major factor. He's made a number of decisions that don't really make sense (eg, hiring on friends to take on roles they have no business doing) and since we're telecommuting from different cities, I don't know what he truly does and sometimes feels he just coasts and collects the paycheck while everyone else picks up the slack. I've tried bringing some of my issues up in the past, but then he goes into this weird mode where he either ignores me or throws a tantrum (seriously) until I can't stand it anymore and give it up - in both cases refusing to address my concerns. In my opinion - he has no business running a business.

So - it's really come down to this - I don't think I can work with him any longer. The hard thing is that the business is doing well, is a great idea, and has tons of room for growth. The business is an LLC and is a 50/50 split financially - although he has majority authority on business matters 60/40.

So - with that said, any advice on how to move forward? Basically, I think either I have to move out of the way or he does. But, how do we approach this from a legal perspective that's fair to both of us - especially considering we've both worked very hard for the past two years on it? What are some of our options?

Thanks in advance.

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Did you sign an Operating Agreement detailing what happens in the event one of the founders leaves or wants to leave? For example, does the OA state what method will be used to value the LLC? – Zuly Gonzalez♦ Nov 29 '11 at 21:05
No, there's no method defined to value the LLC that I can tell. The only thing it states is (excuse the legalese) "a member whose interest has terminated loses all Governance Rights and will be considered merely an assignee of the Financial Rights owned before the termination of Membership." Basically - I believe this means if I just decide to leave the company I lose the governance board status (ie, I lose all business-related voting rights) but I lose none of the financial split in the company (ie, 50%). But what would be stopping them of re-evaluating my slice of the pie? – DNR Nov 30 '11 at 1:57

1 Answer

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I have been in this same situation myself. Based on your statement that your partner resorts to tantrums every time you bring up these issues makes it clear that you will never agree on what is "fair". You are going to need binding arbitration or litigation to separate. It might mean a buyout of one of you by the other or a splitting of the company into two in some fashion. In short, you need to retain an attorney to protect your interests and rather forcefully sever the relationship. It doesn't mean you should hurt him, but you may not be able to meet his unrealistic demands in making a truly fair separation.

In my case, the company was split in two. Neither of us had the means to buy the other out and the relationship had soured so much that neither of us was going to trust a buyout over time. My former partner was not at all happy about this outcome. He wanted me to just quit and walk away. Making him happy was not an option if the arrangement was to be equitable. You may have to face that reality in your case.

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