
Ask HN: My co-founder and I are about to split, what to do? - startupdisaster
Dear HN,<p>My co-founder (who is a close friend) and I have been working on a startup for about 1 year now. My co-founder had the "idea" for a startup. He needed a programmer, so we joined forces. His role is supposed to be design (though currently the application uses my design) and sales/business development/marketing.<p>The product is 99% complete and could be launched in a week. Unfortunately, we can't agree on partnership terms and ownership of the company. My co-founder wants 60% of the company and refuses to split the equity equally with me. My attempts at discussing/negotiating this with my co-founder only stir hostile, belittling responses from him.<p>I've often felt bullied and mistreated by this person, who treats me like a "resource" and bosses me around like a child. Though in certain stages of the project my co-founder has contributed significantly to mocking up the user-interface, we've gone through many iterations and, currently, 100% of the design AND code was created by me.<p>It's looking like we are about to go our separate ways, and my he is threatening legal action and asking me to sign an NDA.<p><i>He is not trying to take my work. He wants to start from scratch again by finding a co-founder or hiring a developer to build his idea.</i> The thing is, I'm still invested in my product. I don't want to ditch it.<p>I haven't signed anything up until now. I think my co-founder registered an LLC, but we've never agreed and signed any sort of partnership/ownership/nda agreement. What power do I have in this situation? Could I find a new non-technical co-founder and launch my product? As a last resort, I would even launch my product for free so my co-founder does not find another poor technical co-founder to abuse. I feel very cornered right now.<p>I've spent over 1200 hours designing and developing and have a very strong vision for the product.<p>What can I do?<p>Thanks in advance, HN. You guys are the best.<p><i></i>* ONE SUPER-IMPORTANT FACT I FORGOT TO MENTION <i></i>*
My co-founder does not have access to my code. I've suspected a partnership breakdown for awhile now, and since I haven't signed anything legal, I decided to make sure all of my work stayed out of my co-founders hands. I've never signed any agreement. I haven't been paid a penny.
======
tptacek
Move on. The project is tainted. Neither of you will be able to use the code:
your business partner has no rights to it, but surely has a good enough story
about your partnership and his contributions to take you to court (see
'grellas comments on the TechCrunch v FusionGarage fiasco if you were hoping
that everything is clean since you don't have an actual contract). Court =
death. Forget investment; there's a storm cloud hanging over your business.

Your BATNA in this negotiation is "get on with my life and leave you with
zero"; that may be a strong enough position to get your partner to let you buy
him out (or vice versa). That's about the best that will come of this.

You could "lawyer up", but that's not going to help you that much, unless your
former cofounder is dumb enough to take you to court or make a break for it
with your code. It's hard to argue that someone shouldn't talk to a lawyer, so
I'll just say: don't spend too much money on it.

There's no chance you're going to work with someone who threatened to sue you
because you wouldn't sign over your code after he tried to take a 60% share of
a product you coded by yourself.

I'm being grim, and surely that will irritate you or someone else in this
thread, but I'm trying to point out the path that costs you the least time,
heartache, and money.

~~~
swombat
This is a great starting point. Start by assuming you'll get nothing out of
it, then see if you can claw back anything from there.

Giving up this fundamentally, fatally flawed business is step 1. From this
fresh point of view, you might be able to come up with a relative win-win.
Maybe your so-called cofounder can purchase the code from you instead of
wasting many months getting it rewritten again. That would be better than
walking away empty-handed.

That said, I propose a fundamentally different target for the "clawing back".

You said this is a close friend. Fuck money. Fuck the business. Save the
friendship. In your position I would assume the business is lost and do
whatever it takes to salvage the friendship. Get another friend to mediate.
Come to an understanding. Accept that you've both got your fixed, blinkered
view of things, and you're not going to agree about it, probably ever, but you
can still get back to being friends despite that.

Close friends are far more valuable than any business. I was lucky to keep my
best friend when my first business blew up. I am really glad I made the
effort, as hopeless as it seemed at the time.

~~~
julsonl
I wouldn't call somebody a close friend if he planned to sue me, take the
share that was rightfully mine (unless his work deserved 60%, maybe not in
code, but in deals, connections and marketing), and insult me around. That
person wouldn't deserve my friendship.

~~~
tptacek
People do stupid things over money or careers. Friends sometimes screw each
other over. Shit happens. If the worst thing you do in your life is to demand
60% when you're really entitled to 50% (or even 40%), you've done OK.

------
grellas
As a lawyer, I can't give advice over a forum such as this for your specific
case but I would suggest two things:

1\. This one is complex enough that you should see a competent lawyer in your
jurisdiction to confirm technical points such as who owns the code, whether an
oral partnership exists (see, e.g., my comments on this at
<http://news.ycombinator.com/item?id=1645130> for an analysis of this sort of
issue under California law), whether you would or would not have a right to
use your code for other work without obligation to your former co-founder, and
(above all, given what your co-founder is asking) whether your co-founder has
any legal leverage to force you to sign the "nda" or to do whatever else he is
trying to force you to do.

2\. Most important, I consider what I would advise a hypothetical person in
the position of your _co-founder_ as an abstract proposition: you don't have
possession of the code and did not develop it or pay value to have it
developed on your behalf; you have no work-for-hire agreement giving you
rights to the IP, meaning that in your best case you may have only an implied
license to use it and nothing more; you came up with the idea but most ideas
are not protectable as such unless they are patentable; you might have a claim
against your departing co-founder on a theory that you disclosed a trade
secret to him in confidence as part of a proposed alignment that never
occurred and, on that ground, might be able to claim that he misappropriated a
valuable trade secret from you if that secret is truly proprietary and gives
you a significant competitive advantage; the foregoing will not apply if the
idea is of a type that is being pursued by others, as this puts it in the
public domain and vitiates its trade-secret status; you may be held to have
waived confidentiality by disclosing this trade secret to your erstwhile
partner without having him sign a confidentiality agreement in connection with
the disclosure; to enforce this claim, you would need to spend potentially
thousands of dollars in a lawsuit fighting over it; in the meantime, your
ability to do _anything_ with your idea would be severely impaired because you
would have to explain to anyone who wanted to join your early-stage company
that you would be devoting major portions of your limited startup resources to
an expensive legal fight or, alternatively, that a cloud hangs over your
venture in the form of a possible major legal claim by your former co-founder;
this sort of thing is virtual death for most startups and serves to dissuade
both prospective co-founders and investors from becoming involved with your
company; and, last but not least, unless your erstwhile co-founder capitulates
and signs documents giving you a clear path to go forward, he can simply sit
and wait and potentially assert partnership and other claims against your
company at any time it builds significant value, subject only to the running
of the applicable statutes of limitations and to certain equitable doctrines
that don't him to lay back forever in hopes of potentially sandbagging you.
Likely advice to him: "Therefore, threaten away - your main leverage at this
point is simply to intimidate."

Given the above, I agree with the many good comments in this thread that it is
probably not wise to get embroiled in a legal fight over this situation -
_yet_ , this doesn't mean you shouldn't consider using use the leverage you do
have to negotiate, if possible, a mutual walk-away that gives you a workable
path to use your code in a separate venture entirely, as for example by
signing documents that give each party the right to pursue this independently
going forward without obligation to the other party. This may or may not be a
good option but you should discuss it with your lawyer to see if it might be
effective here.

------
alain94040
_I think my co-founder registered an LLC_

One more validation that proves that an online database where you can
explicitly pledge equity to someone upfront is a must. Check out the new
<http://fairsoftware.net> that's what it does.

To answer your questions: if it's your code and you didn't sign anything, your
"friend" is not in a strong position, since he most likely has no rights to
it.

By the way, stop calling someone "your friend" when they threaten to sue you.

Now for a final word of advice and in the spirit of helping resolve a
situation that I have witnessed many times, I'm willing to talk to both of
you, as a neutral third party, hear each of you out and report back to both
privately what I recommend. Use my contact info - I have done this in the
past.

------
kls
Do you freelance, if so, what is your freelancing rate. A reasonable rate is
$150hr for a quality freelancer. At that rate 1200 hrs is $180,000. I would
tell him that it is 50-50 unless he buys down the hours as contracting hours.
So to get his 60% he needs to cough up 18k. If he wants to treat you like a
resource then he needs to pay to do so and he should pay the prevailing wage.
Further I would tack on an amount for the fact that you are getting paid after
the fact and took on a portion of risk assuming that you where getting a 50-50
split. I would put it in writing. It is going hard for him to legally argue
against giving you the correct percentage if he is unwilling to pay prevailing
wages. Courts usually frown on exploitation of uncompensated labor. If you
have given him an out to pay prevailing wages with a justifiable premium for
being paid after the fact and he refuses, it will weaken his position in
court.

~~~
kls
Another thing that I thought of, is that this relationship is soured so even
if you come up with an equitable split you still have the future to contend
with. In this situation what I would do personally is take the 40% on the
condition that a. I am a silent partner and b. The software ownership remains
in my name. I would sign an agreement that says that I cannot use or license
to software so long as the (his) company. Is actively in business with no laps
in between actively doing business. In the case that he stops doing business
you are free to use our license your software how you see fit.

This gives you two things, equity for the work you have done with no
commitment to work with him further. If he succeeds then it is all good, make
sure you have a forced buyout clause, where you can demand that your share be
bought out or that you can sell it. If he fails ownership of the software
reverts back to you and then you can have a go at it.

The way I see it, that gives you two shots at making it work. Either he
succeeds and you get a profit for the work you have done with no further
involvement. Or he fails, you get 100% ownership and you get to have a go.
Either way, it gets you out of this mess with no involvement with him anymore.

------
jacquesm
Ok, my $0.02:

Take your code, rip out the front end and the design, keep the back end and
any business logic. Stick a new face on it and find a niche not directly
related to your original target and pivot with yourself as the 100% owner of
the new project.

Your co-founder at this point contributed nothing but the idea, let him take
his idea and reboot with someone else but reserve the right to use your code
for projects not related to the market he wants to go after.

Make up a document that details the split and have an independent party
witness the agreement and give a copy of the contract to your co-founder.

In dutch we call this an 'akte van finale kwijting', I have no idea what it's
called in your jurisdiction but supposedly your friendly neighbourhood Grellas
will be able to tell you and probably has a boilerplate piece of text for you.

It shouldn't cost you more than a few hundred bucks.

After that you both walk away with your original contribution.

best of luck.

------
dctoedt
1\. Under [U.S.] copyright law, both the UI and the code could fall under the
category of "joint work," namely "a work prepared by two or more authors with
the intention that their contributions be merged into inseparable or
independent parts of a unitary whole." If that's the case, _you could each be
co-owners, with an obligation to account to each other for your respective
future uses,_ for example, split the proceeds.

2\. In court, the accounting could be messy and expensive. As an alternative,
if your "friend" were amenable, you could sign a walk-away agreement that, in
essence, let him do what he wanted with the UI, and you do what you want with
the under-the-hood stuff, with no obligation to each other. In the agreement,
you could consider an early-neutral-evaluation clause (see
<http://goo.gl/f2Js>) and a fee-shifting clause (see <http://goo.gl/J1JK>) to
create incentives to settle the (likely) subsequent disputes.

3\. Another possibility is that, LLC notwithstanding, you were legally a
partnership, with each of you owning an undivided interest in [EDIT:] the
partnership, with the partnership in turn owning everything, e.g., the UI and
the code. For that, a lot would depend on what state(s) the two of you are in.

(Disclaimer: I'm not your lawyer, YMMV, etc.)

~~~
tptacek
Thanks for hanging out here and helping clear stuff up!

(I know Bindview from way back; my friend Adam Shostack used to work there,
back when they competed with the security company I was at at the time.)

------
geuis
Its situations like this that make me wish YCombinator had some kind of
resource available to the general startup community to advise on similar
situations.

I started a company about 4 years ago where I was the sole developer and the
idea was mine, but the financing and business end were mostly being handled by
my old friend/boss. I knew absolutely nothing about how incorporation or IP
laws worked. I really wish that there was some kind of "Start Here" guide at
the time, a "Startup for Dummies" kind of resource.

In my specific situation, the failure of the company wasn't due to
disagreement or anything. Rather, the economy in Florida tanked earlier than
the rest of the country. This negatively affected the folks I was working with
and they needed to relocate elsewhere in the country to support their family.
Meanwhile, I was going through a nasty and heart-rending breakup with my
longtime girlfriend and ended up ditching everything and moving to San
Francisco. In the end everything has worked out, and while I learned a lot
from the experience, I still wish that "How to" guide was out there at the
time.

------
zbruhnke
First of all, this is terribly hard to decipher with only one side of the
story present (although it seems you have a presented a reasonably unbiased
argument). But in my opinion if the idea is truly worth what you think it is I
would consider a proposition to start out 50/50 and as revenue comes into the
company he will have the option to buy out your equity (only up to his
requested 60/40) at x number of dollars per share.

This ensures for him that he will get that ownership he wants, and although
you will ultimately end up with less in the end if the company is a huge
success being the technical founder of any startup leaves many more doors open
for your future in the end. And the possibility that it will not succeed
entirely yet you would still get a (presumably) significant amount of money
from the initial windfall would seem like a win/win to me.

Again, that is just IMHO so take it for what its worth, but as someone who has
out significant amount of time into several projects and seen some pay off
both big and small that is an awful lot of time to just let it go to waste.

That said, whatever you do, do NOT agree to go separate ways AND sign a NDA.
The situation you are in now holds up much better in a suit than one where you
sign an NDA then decide to launch any way. With one man's word against another
it is hard to decipher how that lawsuit would turn out, but I am willing to
bet it is significantly more likely to be better for you without that
particular paper trail.

------
bond
Hmmm, you made a mistake in not having your agreement in writing when you two
agreed to work together.

Having said that you must now move on. You have the code, he doesn't have any
rights for it. If you stay, this will backfire big time down the road.

The partnership must rely on trust and respect, clearly not what's happening
here.

Move on.

------
Someone
Firstly, are you sure you describe the situation objectively? If this were a
novel, I would consider the storyline under-developed. There must be some
reason, however injust, why your co-founder thinks he should get a majority
share. For example:

"currently, 100% of the design AND code was created by me."

You may have done the typing, but you also acknowledge that there was a lot of
discussion that led to the current design. I guess that this is an area where
your co-founder may see things very differently ('(s)he did the technical
stuff, but all the ideas are mine')

As to your question, you should decide what you value more: getting back on
your co-founder, or having the product succeed. In the first case, go talk to
a lawyer; in the second, I think you should get an agreement that includes you
leaving the company ASAP. That ASAP is because of phrases such as 'bullied',
'bosses me around', 'belittling' that make me wonder about the 'is' in 'who is
a close friend.'

How much you can get out of it depends on the value you have to the company.
That will depend on the technical complexity of the product.

~~~
startupdisaster
I'm not "in" any company, though. Or am I? I've never signed any agreement. I
haven't been paid.

~~~
tptacek
You don't have to sign a contract for a counterparty to claim that a contract
exists; worse still, your partner can claim, even the absence of a paper
contract, that there are fiduciary duties you owe to each other. It helps you
that you've never received consideration from your partner, but I doubt it
helps so much that he can't take you to court out of spite.

~~~
dctoedt
Your "friend" might even claim you were an employee of the LLC.

~~~
trizk
Not unless he paid him regularly, offered him health benefits, and paid
unemployment insurance. A claim like that could land his "friend" in jail.

~~~
tptacek
This comment makes no sense. I'm an employer. I assure you, you do not need to
offer health benefits, pay unemployment insurance, or even pay on a regular
schedule for someone to be classified your "employee"; having seen
unemployment insurance SNAFUs firsthand, let me assure you that "jail" doesn't
enter the picture here at all --- they simply send you a bill.

~~~
dctoedt
> _This comment makes no sense_

I think tptacek is correct concerning the legal issues here. In any case, I
didn't say the "friend" would prevail in his claim that the OP was an employee
of his LLC, nor that he wouldn't suffer unintended consequences as a result of
making the claim.

~~~
trizk
Failure to pay unemployment insurance can lead to jail time in many states.
Quick search on Google yields an example for MA:

[http://www.ehow.com/list_6306349_massachusetts-state-
unemplo...](http://www.ehow.com/list_6306349_massachusetts-state-unemployment-
laws.html)

"Employers who fail to pay unemployment insurance premiums can also be ordered
to serve time in a state prison."

You can search for the legislation on Mass.gov if you like.

~~~
tptacek
I'm sure that if you refuse to pay when the state government escalates from
reminder notice to nastygram to series of phone calls all the way to "takes
you to court", and you do something that indicates to a judge that you were
overtly trying to shirk paying, then yes, you could go to jail.

The point is that it's not relevant to the situation at hand, because 10
months before that could ever happen, the "employer" is going to get a notice
saying they owe some trivial amount of money, and they're simply going to pay
it to go away. You would have to be made of stupid to end up in jail over
employment taxes.

Note that you're replying both to a lawyer (in dc's case) and to someone who's
dealt with this exact situation (in my case); you may want bigger guns here
than a pay-per-word Demand Media article.

------
jdavid
You put 1200 hours into this. If that is really true, that is 6-8 months worth
of your time and investment. It's going to hard to just throw that out, and to
be honest you shouldn't.

It sounds like your co-founder is extremely strong willed. This can make for a
good trait if used well. On the flip side these people are not fun to work
with.

    
    
      Who do you think would be more successful with the code?
    
      How can you generate value from your work?
    
      Can you opensource the code? 
    

And then both of you can use it, and fork it? Most likely if you are a coder,
having a well developed opensource project will do wonders for you being able
to find your next role. And if you decide to start a company from the code via
a fork, you could actually sell it because you are the original author, and
you could dual license it. Since the code was not work for hire and there were
no legal contracts as to the nature of the code you could probably do this.
Get a lawyers advice.

Also since you are the developer behind the code base you can probably fork
the code faster than your friend.

If your friend wants to buy the code from you, maybe you can do a rev share
deal with your code and his business. There would be terms to transfer the IP,
but I am sure you can figure that out if you need. In this case the code would
stay private, and you would still have authorship rights to it, but he would
have a rev share license to use and to derive from it.

I strongly thing that anyone that has asked you to throw out 6 months worth of
work is giving bad advice, but this is a difficult situation and you can't
expect maximum value out of this.

Your goal should be

    
    
      - get something for your time
      - part ways with this founder
      - leverage this experience and code base to find a new oppertunity
    

[http://books.google.com/books?id=l3GD2EgazCkC&q=retreat+...](http://books.google.com/books?id=l3GD2EgazCkC&q=retreat+double#v=snippet&q=retreat%20double&f=false)

 _page 48_ Sun Tzu - Without a way to retreat, an army fights with double or
triple the spirit it would have on open terrain, because death is viscerally
present.

If you offer your enemy a retreat they may take it.

~~~
tptacek
He can't simply use the code he wrote, because his partner will have a claim
on it.

Similarly, his cofounder probably can't simply pursue the business by having
the code rewritten.

The best he can say is that he has something his former cofounder wants: a
free and clear path to pursuing the business independently. Likewise, his
former partner has something he wants.

It's worth talking that out, but if things gridlock, he's better off just
doing something else.

~~~
jdavid
Well, the code was developed without a contract, and was never shared. IE. it
was not a work for hire. It was not documented, even if it was implied.

He also never agreed to any trade secret documents or IP documents with his
potential co-founder.

    
    
      did you sign any incorporation papers?
    

It's a creative work, and... although his friend that intended to start a
business didn't do what was necessary to lock up the code either. they both
foobared this.

It might be hard to start a business with that code, but I am pretty sure he
would not be liable for damages if it was opensourced.

By this logic and after legal advice, if one were to open source the code, it
would be usable by both parties, and he would still have the technical
advantage.

This is the leverage he can use to control the agenda of the discussions.
Opensource gives him an advantage over his potential co-founder, one that can
not be undone.

Also, if both parties agree to keep it closed, then they might agree to some
partnership in each others new company.

I would advise against the freeBSD or MIT licenses, a good copyright lawyer
will know which license will still allow for a derivative work, since you wont
want to use the code just as a library.

I have hacked on projects with friends and for a variety of reasons have
decided to move on. These recommendations are part of how we have discussed
how to amicably move on. We are still friends today.

We wanted to sustain value in what we did, but decided that building a
business around the idea was maybe not the best idea.

~~~
tptacek
The world would be a lot simpler if logic like this was sufficient to dispose
of legal issues as severe as "someone who I call my _cofounder_ believes he
owns 60% of my business".

------
bconway
Lots of questions, a few answers:

A.) Yes, move on. Pack up all your work and put it in a safe place.

B.) Learn from it. In the future, all of the equity and administrative
decisions should be made and agreed upon before writing any lines of code.

C.) While it might be satisfying to take your work and launch yourself (or hit
him with a free service), think hard about it, and definitely consult a
lawyer. It will be a sticky situation.

~~~
davepeck
Point B cannot be overstated. You should _always_ have your corporate
structure in order before you start working on a business endeavor with
_anyone_ \-- even people you know well. Forming an LLC with an easy-to-
understand operating agreement might take two four hour chunks of time and
will save untold headaches down the road.

~~~
petervandijck
"You should always have your corporate structure in order before you start
working on a business endeavor"

Sorry, that just doesn't sound practical. Do all you people actually do this?

~~~
owkaye
They do not, and that's one of the primary causes of problems like this. Just
because it's the intelligent thing to do does NOT mean that intelligent people
actually do it!

~~~
petervandijck
It sounds to me like it just introduces more friction to Getting Things Done,
which would not be the Intelligent Thing To Do.

------
davidw
> I've spent over 1200 hours designing and developing and have a very strong
> vision for the product.

> I think my co-founder registered an LLC, but we've never agreed and signed
> any sort of partnership/ownership/nda agreement.

OUCH.

Sounds like there's something worth salvaging though, so why don't you two try
and patch it up - maybe try to find a neutral third party or something? I
think it might even be worth your while to jointly pay some kind of person who
is good at mediating disputes to try and help you come to some kind of
agreement.

~~~
ojbyrne
I'd second the third party idea. If you both feel like there's something that
could be salvaged, I think even hiring a professional mediator for a couple of
hours might help.

------
grandalf
Why not just take the 60/40 equity split, but demand 50/50 voting rights? Or
maybe do the opposite. Chances are he simply feels entitled to a bit more of
the company, but if the company is successful that 20% difference in wealth
will be fairly meaningless.

Or, maybe he wants 60% of the shares but doesn't care at all about many of the
decisions.

Bottom line: Ok your partner is a prick, but he may still be a good business
partner. There are also dangers in working with people who are too nice.

EDIT: Also it's worth noting that VCs are often spooked when founders don't
have an equal share b/c that is a predictor of things going south as the
company grows. Perhaps your cofounder would be moved by that tidbit to suck it
up and be equal partners.

------
MrFlibble
I'd suggest agreeing to the 60/40 split. He'd feel like he got what he wanted
& you would launch your 1,200 hours of work. HOWEVER, would it be possible to
structure the 60/40 split so that any shares handed out in future rounds of
funding will come from his 60% since he is the "business guy"? If you can do
that, then your minority % may become an equal or even greater % as the site
grows & needs capital for expansion.

My project has me holding onto the majority of shares, but with the full
knowledge that those shares will be the source of shares allocated to
investors as more capital is injected. Unless he is a greedy bastard I don't
see why he wouldn't consider something of the sort.

~~~
jacquesm
I would think that would lead to the OP being sidelined completely and screwed
out of his 40% after a while anyway.

If you can't get to an agreement based on a 1200 hour chunk of input then you
have a problem. No point in going further with this person.

~~~
MrFlibble
Sure he could be sidelined if the paperwork is poorly drafted, it would all
depend on how strong that 40% agreement is.

Really if he wants to get something for all that work, 40% of a project that
exists is better than 50% of one that doesn't. Yes it sucks, but it is better
than walking away. Whatever he does, I think the OP needs to paper up in a way
to ensure the partner cannot dilute the OP at a greater rate than himself.

------
makemealive_dk
Ooh. I would have to agree with tptacek. You need to just move on. At this
point the project isn't complete and is not even a business. To get a lawyer
will cost money and you will be fighting over intellectual property.

I don't want to tell you not to consult an attorney but it will be a long
drawn out process that will kill your creative spark and passion for the
project anyways.

I was just talking with someone last night about how once money or vested
interests is involved it is too late to sign agreements. It must be done
first. Sorry this had to happen to you. I am sure you learned some valuable
lessons that you can't learn in school.

------
staunch
Lesson learned. Move on to something else.

------
devmonk
Doesn't sound like a good relationship to me.

I'd think you should get a good lawyer asap.

Odds are you do have documentation. Get all the emails, receipts, etc. you can
find, the code (hopefully you have logs, etc. of work in source control,
although I'm not sure if they'd know what to do with that in court or if would
be admissible as evidence), and talk to people who could testify on your
behalf.

The other option is to ditch it all, but it sounds like you are invested
enough where you would rather make a lifetime enemy than give it all up.

------
Detect
Avoid further relationship with your "friend." Make sure you have good
documentation/proof of the amount of work you've put in and what you've done
in case anything goes wrong.

------
gojomo
The partnership is spoiled; sounds like you have to part ways. But, without
some agreement, essentially neither of you could go forward with what's been
built -- an awful lot of potential to write off. (He doesn't have the code
unless he sues you; if you went forward without him, you'd be in for some
legal hurt.)

Try to think of mutual-resolutions that both split you up and allow someone to
move forward. (In the meantime, sign nothing and 'reserve all rights'.)

Something involving a side-payment or non-dilutable passive share might work.
For example: you agree to walk away and give him the code for a cash payment
and 25% share of the company with no further obligations. Then, if it does
take off, you've got a great claim worth pursuing, but in the meantime, you're
free of the headache and able to apply your talents elsewhere. Or vice-versa.

If you do go this way, you might ask him to 'walk away' with a payment and
passive share first. When he says that's a raw deal, then see if he'd offer
the same in reverse. And, make the negotiated agreement ironclad/final with a
lawyer's help -- rule out as much possible 'but the code isn't as promised' or
'we had to rewrite it all' later-claims. (Remember: when shopping for lawyers,
you essentially get 30+ minutes free advice from each one you talk to!)

~~~
dctoedt
> _When he says that's a raw deal, then see if he'd offer the same in
> reverse._

That's akin to what's known as a <http://en.wikipedia.org/wiki/Buy-
sell_agreement>: One of you makes an offer to buy (or sell). The other must
either accept the offer, or he can flip it around on you, in which case _you_
must accept it. (This is akin to "you cut the cake, but I decide which piece I
want.")

If you went that route, presumably you'd want to put the buy-sell agreement in
place first, then one of you would make the offer. You'd want to think through
which one of you should be the one to make the offer - that could vary greatly
with the circumstances.

(Disclaimer, more or less mandatory for lawyers: I'm not _your_ lawyer, YMMV,
etc.)

------
willheim
So it comes down to ownership? The 60/40 split?

The design as it is now does not matter that it's all yours. You've gone
through several iterations and the mock-up was his. The initial idea was his.
You are a resource. A valuable resource but a resource nonetheless. The 60/40
tells me he thinks it is all his baby and that he can replace you. You confirm
that thought. He doesn't want your code and will start from scratch which
tells me he really doesn't like how things have developed.

Now, you say it could launch in a week? Is it a NDA or a non-compete that he
wants you to sign? NDA means nothing at this point. You built it. Non-compete
would mean everything as you could take the code and launch your own project
if you believe in it.

You haven't been paid, haven't any signed agreements, and have done all the
coding. Legally, without any documentation, it sounds like your partner would
have a tougher time to prove ownership. What's in your emails?

So ultimately you got this: Partnership is dissolved. Nothing is signed.

Talk to a lawyer to straighten this out. Likely a mediation to determine
ownership is required.

And learn your lesson for the future: Get it in writing.

------
aaronblohowiak
First, congrats! It is a great achievement to have (effectively) single-
handedly built your first startup.

If you're going to break-up, try and get what you can out of it. I don't think
you should get lawyers or courts involved -- wait until there is real money
(if ever) before taking that plunge. Instead, why don't you offer to have your
co-founder buy you out? I don't know what you'd charge for contracting, but
1200 * 150 = 180k. If you make that a debt that he owes you due on a liquidity
event in exchange for him having total ownership, then you walk away with
nothing now (which is the most likely outcome regardless) but you do have
recourse if he ever _does_ hit it big. It is also the best deal for him, as
there is a working and near-done system that he can effectively get for free
-- if he has a big liquidity event, then he should be happy to pay you a
decent contractor's rate. Write something simple up in plain english and
include a note where you agree to binding arbitration, which should save you
both some cash if you ever have a deep disagreement in the future.

------
joystickers
1) Taking legal action costs money. Your product hasn't launched yet so it
hasn't made any money yet either. He is either going to have to sue you with
his own money or find a lawyer that is willing to work on commission for a
product that hasn't made a dime. I wouldn't worry about his threats.

2)It seems to me that you've been very complacent with your co-founder up to
this point which is why he thinks he can bully you with such a bogus claim.
You need to politely say you've had enough of the abusive relationship and you
wish him the best of luck.

3)Did you sign anything for the LLC? Anyone can put anyone else's name down
when they register it online, but without a signature it's meaningless. Form
your own LLC or S-Corporation and start learning the biz side yourself.
Articulate exactly what you think you need a biz person for and start doing
what you can. You'll get a better understanding of the expectations you'll
have for the next guy, who may end up being an employee instead of a co-
founder.

Good luck!

------
lefstathiou
I am not convinced that if this went to court you WOULDNT get 50% at a
minimum. A key buzzword in law is "reasonable". You guys had no contract in
placed and never set or agreed to tentative terms. In the absense of that, I
believe it is assumed that it is an equal partnership. The fact that it's a
technology product and you did the lion's share of the work goes to your
favor.

At the end of the day you dont want to work with this guy anyway. If you're
bent on being reasonable, I would tell him that the terms are 50-50 and
nothing less. If he wants to get a lawyer he can. Remember that he is in the
same place you are in. He cant just go start another company because you have
the same claim on the IP that he does. So in order for him to do it completely
detached from you, I would think he needs your sign off, which you wont give
unless he expressly terminates your agreement.

Hope this makes sense.

------
siglesias
I wonder: this person is your friend, and he seems reasonable enough for you
to have started this project with, so what's his side of the story? What's his
rationale if, as you say, you've borne a brunt of the work?

This may well be the only side to the story, but something tells me there has
to be more to it.

~~~
timmaah
My guess is the friend is one of those people that thinks the idea is worth
more then the work it takes to launch it.

> My co-founder had the "idea" for a startup.

~~~
siglesias
I understand that, but it is also implied that the author iterated on a good
deal of material provided by his partner and is now calling it his own. That
seems a bit unfair also. I don't think we ought to prejudice the other party
on the basis that he had the "idea." Yes, execution is more important than the
idea, but it probably isn't that simple.

I'd be totally ready to render judgment if I heard the other guy use the idea
argument but we need to hear it from his mouth.

------
joecode
Launch. If it gets traction and it looks like court is the only other option,
make a settlement with him. Don't worry what is "fair" or about the work
you've already sunk in. Just make sure it's worth it for you, get him out of
the way whatever it takes, and move on.

------
timmaah
First I would probably stop working on it immediately.

Then I would gather all evidence you have and create a full time-line of the
project. From when it started, to who did what, what was previously agreed on,
either via email or in person. Then it is time to talk with a lawyer.

------
boonez123
Your idea has a 99% chance of failing so any chance so let him run the
company. In the event it succeeds lawyer up, take a portion for free. Done.
You win.

If you decide to keep the code for yourself, then you end up sweating it out
with him, being stressed, and so on. Best to tell him good luck. I'm sure
you're a smart guy so you'll find another adventure, so let that guy run with
his pipedream, and just keep proof of the fact you built it, as I'm sure you
have emails and proof showing equity division and so on.

Wish him the best of luck because ultimately if he succeeds you do as well
(after the lawsuit), regardless if you split up or not.

You could always do a friendly "shotgun" clause tactic too.

~~~
cvg
If you can get a signed 60/40 contract with no vesting period, this might be
the way to go.

Your co-founder launches it and then you quit with the equity. He can find
someone else to carry on the code. If he's successful, then so are you.

Good luck. I've been where you're at. It ain't fun, but life goes on...

------
jsn
No advice; but, man, I feel for you. I was in almost exactly the same
situation four years ago. I just let go, signed that 3 month NCA, cut the
losses and moved on -- never looked at that code again. He wasn't very close
friend of mine, fortunately.

He was going to hire a coder and proceed with the project; as far as I know,
it didn't quite work, and he never launched. Not sure, though -- we don't talk
much these days :)

Looking back, I'm glad I've got out of those toxic relationships. Yeah, seeing
your invested money and efforts going to waste is not a piece of cake, but,
really, having to deal with a toxic partner on daily basis can be _much_ more
of a damage.

------
Armence
You should explain to him that you are just as capable as he is to take legal
action which would put a nice big hole through his funding possibilities.
Then, offer to either sign something that says you owe each other nothing and
that you are free to do as you wish with the code you wrote. Or, tell him he
can pay you to sign the NDA. If your product is good, it's probably not
because of the idea. It's probably because of the execution. If he is willing
to pay you enough so you can spend 1200 hours on a new product idea. Go for
it.

------
silvajoao
How I can feel your pain. The same happened to me in a different scale:
"partner" wanted 100%, but the situation only lasted 4 weeks.

The _BIG_ lesson from my and your story is: _BEFORE_ starting to work on an
idea, _BEFORE_ even discussing an idea, discuss what "partnership" means to
each other. Some people's concept of "partnership" might surprise you.

My little story here: <http://news.ycombinator.com/item?id=1732039>

------
alexsherrick
to be honest, if this guy hasnt touched the code, given any money, registered
anything, then i really don't see what IP he has. an idea is an idea. that is
it.

~~~
tptacek
He has whatever insight he claims he's informed the development with, along
with whatever marketing awareness or lead gen work he claims to have done,
along with any design or copy writing assets he can claim to have added to the
project.

In other words, he has enough to take the issue to court. That he's unlikely
to win in court is completely irrelevant; court cases can take years (the last
case I was involved in didn't get an initial hearing for 7 months after we
filed) and are ludicrously expensive.

------
yakshaving
I would strongly suggest a mediator, or a group of mediators. I don't think
you need lawyers, but other people whom you mutually select in the software
business would be good. What's the revenue model for the startup? Will you
need to take more funding or do a lot more work in order to get to minimum
"buyable" product? If I were in your shoes, I'd try to figure that out frankly
before deciding next steps.

------
davidst
The most important question you both need to answer is which is more
important: Friendship or the business?

If it's friendship then don't involve lawyers (that will almost certainly end
it) and find a way to part under terms such that you can remain friends. In
this case don't worry about plus or minus ten percent. It won't matter. Go
your separate ways and preserve your mutual peace-of-mind.

------
coryl
Ouch, some friend he is. What I'm wondering is why the split was never
declared before you started working together?

~~~
startupdisaster
We've gone back and forth many times. It's hard to decide on equity when
circumstances change. Also, I recently discovered that we are at pretty much
at step 0 in terms of business/customer development. I thought my co-founder
(who never really tells me what he is working on) had made progress but I
found out recently that I'm expected to jump right into sales with him once
I'm available to do so.

~~~
kls
_I thought my co-founder (who never really tells me what he is working on) had
made progress_

Discovery, will ferret this out in court and without a patent, who came up
with the idea != an equitable consideration in the eyes of the court. If he
truly has not done any or little work you may walk away with a larger stake
than he is looking for. Exploitation is frowned upon in most courts.

------
trizk
Do not under any circumstances sign anything. Copyright
(<http://www.copyright.gov/register/index.html>) your code immediately. Then
play hardball. Tell him you feel that you have done most of the work and want
60% or you will go your separate ways.

If he is threatening legal action, take legal action first. File a complaint
if he even touched your software. (Uploads it to a server, tries to give it to
another developer to reverse engineer, etc.). Don't say anything in email or
verbally that you may regret later. In fact, assume that when you talk to him,
whatever either of you say may be used in court.

Start going it alone right away. Try to market and sell the product by
yourself. Your wrote it. Its yours. He might try to take you to court over
this in that you had some "verbal" agreements wrt a joint venture and he
probably has some emails to back him up (M. Arrington et. al.) so it is
imperative that you either placate him or take legal action first.

------
aaronlammer
Maybe consider a mediator? It seems like everyone loses if the code just goes
down the drain.

------
petervandijck
One option is this: destroy the code (actually make sure there are 0 copies
left). Then mourn (get drunk or something, or take a trip), and move on.
Destroying the code might help, psychologically, to let go. Just throwing that
idea out here :)

------
trizk
"start from scratch again by finding a co-founder or hiring a developer to
build his idea." more likely than not means he is taking you for a ride.

------
epc
I hate to say this, but you need a lawyer.

Cease working on the project until the situation is resolved.

Package up everything you have related to this, mail, I/Ms, code, everything.
Any paper notes, any receipts, anything you did to track time. Document
everything, make several copies. Don't delete information which is
inconvenient or contradictory to your story, if it's digital it already exists
somewhere else anyway.

The conflict may not be resolved in your favor, though the lack of any written
contracts, ownership agreements, etc. is going to be a major stumbling block
in any litigation against you.

Establish a fair value for your labor, what was the opportunity cost to you
for the 1200 hours you worked on this instead of getting paid? Don't go nuts
here, if you get paid $50/hr for contract work then that's a reference for a
dollar value for your time.

Establish a value for —for lack of a better term— your good will: the
intangible contributions, ideas batted about, subtle shifts in the
product/business strategy, and your ongoing contribution of such.

Finally, how much would you take to walk away, handing over the code, all
rights, etc, for zero equity, zero credit?

Now, ask yourself some questions:

\- what's the value of the product overall today? Is that based on real
revenue? potential revenue? pie-in-the-sky valuation? sum of all
labor/expenses?

\- is your friendship with your co–founder worth more or less than the
"potential" monetary value of either the 50% or 40% equity stakes, or the sum
of your contributions and your walk-away value?

\- is the relationship truly poisoned? Can it be rehabilitated? Can it be
rehab'd with you working together? Or would it be better for you to split
amicably?

\- is any of the monetary value at stake worth more than the potential cost to
litigation? Or than the personal cost if there's a bitter split between you?

\- would you have come up with this idea, put 1200 hours into it, without the
cooperation & dialogue with your co-founder?

Talk to a lawyer, learn what your options are.

Possibly talk to your "co-founder" about mediation, bear the expense equally,
it'll cost less than either litigation or years of bitterness.

If you have the code base, you have a lot of power. The worst thing you could
do right now is launch the product without having this conflict resolved.

I walked away from a startup after 18 months of work when the founder changed
the terms of the organization of the company drastically. A number of us had
worked together previously, and worked for that 18 months on mostly a
handshake. We're on cordial terms now, years later, but not what I'd call
friends. My lesson learned there was: if the ownership structure isn't
documented promptly and up front, you don't have a startup, you have a lawsuit
waiting to happen.

~~~
beej71
This got me thinking, which is always a bad sign.

One possible way to "timestamp" your entire code tree might be to zip it up,
cryptographically hash the result, and then print out the hash and physically
sign it with a notary.

I have no idea how legally useful this might be. I'm sure it would be legally
difficult to explain. :-)

~~~
jdavid
and will cost $10-$20 in the state of California every-time you want to time
stamp it.

    
    
      sounds cumbersome.

~~~
bigiain
I've wondered before about whether posting an MD5 hash of a snapshot to usenet
or a bunch of free mail services (Gmail/Yahoo/Hotmail) might serve as a
"beyond reasonable doubt" method of proving you had a specific bunch of files
on a particular date. It _should_ be possible to argue that the likelihood of
me being able to subvert Google's and Yahoo's and Microsoft's mail servers all
at the same time is effectively none, and subverting every usenet server in
the world even smaller.

I know where I come from (NSW Australia) there's already established legal
recognition of MD5 hashes, they use them to verify authenticity of traffic
enforcement camera data.

------
brittany2885
startupdisaster - I am interested in potentially featuring your situation on-
air at "The American Entrepreneur". If you are featured, you will of course
receive advice from our host, a 12 time successful entrepreneur, and
potentially from one of our experts (we have many lawyers who often join us on
the radio in these situations). Of course, you can remain completely
anonymous. If you are interested please contact me at admin@taeradio.com.
Below you will find some information about TAE radio, feel free to go to the
website and check us out further if you would like.

Launched in 1999 by Mr. Ron Morris, TAE radio is a daily, national three-hour
call-in talk show that exists to help entrepreneurs and business people of all
types conceptualize, build, grow, and exit their own start-up. Some of the
more recent and significant guests on TAE radio include: Robert Kiyosaki,
Malcolm Bricklin, Steve Wozniak, Regis McKenna, Jason Fried, Dan Bricklin
(inventor of VisiCalc, the world's first software product), Aaron Patzer,
Steve Forbes, Ram Charan (the world's highest-paid business consultant), and
many more. Visit www.TAEradio.com for more information.

------
iuguy
You have two options:

1\. Lawyer up.

2\. Walk away.

Either way, it may be helpful to at least see a Lawyer first.

------
asdfor
Get a lawyer

------
shareme
From NOW ON:

1\. Any startup, get an agreement up front. Do not wait until something
happens.

2\. do not write code without a contract, ever.

3\. Do not start a startup whereas developer co-founder code is hidden form
one of the co-founders..ever.

For right now You need to stop all work and get a lawyer. Pick one that has
some mediator skills

