

Screwed by incubator, what do I do with my dead company? - throwaway74593

Hi everyone,<p>I was part of a (non-YC) incubator in the Bay Area.  We were given a small amount of money equity-free and we were directed to use the incubator's high-profile Silicon Valley attorney in forming our corporation.  The attorney and founder of the incubator tried to throw out our CEO and replace them with an associate who worked for one of their VC sponsors.  This ended up being a pretty awful experience, and we left the incubator early.<p>Given this experience, the founders have agreed that this company is not going anywhere but we're unsure what to do.  We're obviously crushed, but we have plenty of other opportunities, so we're okay.<p>But to complicate it further, the attorney is now demanding payment for their services which total about two-thirds of all of the incubator money we even got (which has already been spent), and the attorney's firm has a negligible amount of equity in the company.  Nobody other than the founders has any equity, and we didn't raise any capital.<p>So, HN, what have you done with your dead startups, especially after they've been legally formed as a Delaware C-corp?  And, how do make sure the ghost of your startup doesn't haunt you for years to come?<p>Thanks!
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will_brown
It appears your past experience with them has not gone so well, but you need
to meet with an attorney immediately. If you do not know someone contact the
CA Bar and they can refer you to a local attorney.

>the attorney's firm has a negligible amount of equity in the company. Nobody
other than the founders has any equity,

Just before saying only the founders own the company, you say the attorney's
firm has some ownership in the company, so it is a little confusing, but,
these are major issues to discuss with an attorney:

1\. Did this attorney an/or his firm take ownership in your company? Did the
attorney/Firm pay or exchange their legal services for this ownership? Did
they take ownership and charge the company for their services?

2\. Is the attorney seeking payment from you, personally, or the business
only? Did the attorney represent you the business or both?

3\. As for the comments suggesting you simply dissolve the Company, you
definitely should NOT do this before talking to an attorney. For example, the
articles of incorporation and by-laws generally require a meeting and approval
of all owners, which in this case appears to include a law firm seeking
payments either from the company or you personally.

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e1ven
It's a difficult situation, and there's no generic advice.

If this isn't something you're planning to pursue, I'd use what (if any) money
is left to wind down the company. Declare corporate bankrupcy, file a
dissolution form, and close up shop. You shouldn't be personally liable for
anything, but you want to close up shop cleanly regardless.

Hire a cheap lawyer to help you do the forms, or use online resources like
Nolo or Legalzoom.

If you explain the situation to the lawyers who own part of the company, they
may be willing to do it for free, or to take over the company, and run it
themselves. Neither hurts you, since you're moving on anyway.

Good luck, whatever you do!

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thejteam
I suppose the lesson learned is always pay for your own attorney, even if it
is just to review what the other guy's lawyer did.

This also caught a lot of people in the housing boom, when mortgage companies
didn't properly explain terms to people and then had them use an attorney the
mortgage company paid for. More than one person had the question "what's a
balloon payment?" 5 years after the mortgage was signed.

My only advice going forward would be to see your own attorney over this,
preferably one that has experience in company formation and dissolution. Take
all of the paperwork with you, as well as contact info for the other guy's
attorney.

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relaunched
There is a simple dissolution form that you can file with delaware, but you
have to pay the taxes first.

Check your documents, if you are working with a major SV law firm, they
regularly take startups under the guise that if you don't raise / exit /
generate significant revenue, they write off the fees. After all, you
shouldn't be personally on the line and the corp has no real assets of note.

Or, if the investor still wants the company, sign it over to them...what do
you all care at this point?

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nichols
Try selling it to Yahoo!.

~~~
speeder
I suppose.this is a snarky joke. Can someone explain to me why the joke? What
yahoo! did?

~~~
logn
Yahoo is looking to acquire companies to remain relevant. So they might buy
anything, like this failed startup.

