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I have been a co-founder of a start-up that is beginning to take off and make some noise and hopefully is on the right path :)

The question arises because until now the 3 co-founders (me & a friend + another who joined us on the way) haven't signed an agreement yet.

The stakes we would have in the company were decided a while ago. The friend I work with is someone I know since I was at school, hence its moved so far since then with verbal agreement. Only new thing is that he would have right to an irrevocable proxy.

My question is How could an irrevocable proxy go go wrong for me ?

Things to note:

  1. This company has been operating for a while now, about 8 months so our product is almost ready and we have clients waiting for deployment.

  2. I am the technical founder of the company, I manage 6 technical employees remotely, help make business decisions and code myself in the remaining time, I do not get paid, have no monetary investment in the company and am still a student at university ( for another 2 months, after which i'll switch to this full time ).

  3. The 2nd co-founder came up with the business idea, had put in all the investment to get the company where it is (quite a bit until now), manages ideas, timeliness, business contacts and sales. He is the one who is asking for rights to an irrevocable proxy.

  4. The 3rd co-founder joined us along the way and handles only sales & clients at the moment.

  5. The reason why I ask the question is not because I do not trust my co-workers currently, but I would still like to know what I'm going in for.

Thanks!

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I'm not familiar with all the details of 'irrevocable' proxy. But he essentially wants your voting rights in the company... so if there are three of you each at 1/3 1/3 1/3, he is trying to get majority voting power so he can make any and all decisions. That's what it seems. But if you haven't signed anything... where is it defined how you are structured, how business shares are allocated etc.? Doesn't seem like something I would want to do. – Ryan Doom Apr 9 '12 at 2:15
Good contracts make good friends. I'd advise against the irrevocable proxy. It can be useful for breaking deadlocks, but there are easier, less overbearing ways to do this (Give whomever is CEO an extra vote in the case of a tie). – bwasson Apr 9 '12 at 16:54
True, I think even if one was to opt for something like irrevocable proxy it shouldn't apply to a co-founder. It seems more applicable to investors and people who have joined in the course of the project, and may try to influence the aims and targets of the company or something similar! Thanks for the help guys.. Ill attach documentation I read to reach this conclusion in the answer. – hackfanatic Apr 9 '12 at 21:50

1 Answer

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A Good guide to explaining and understanding Irrevocable Proxies with examples can be found at

Irrevocable Proxies

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