

Ask HN:My former co-founder is threatening to sue me  - hack_rohan

Hi all,<p>I am from a third world country and my fomer co-founder is a u.s citizen.<p>We have been working since last 3 years on a ad network start-up which closed earlier this year.<p>I started a part-time project and i need some money to sustain myself so i decided to ask for 500 USD for 
6 months and also 2 - 4 hrs commitment  everyday from my former co-founder the project kicked off really well and 
we generated about 6K income in 1 week after the expenses our total profit was about 4K.<p>My co-founder paid for 2 months thats 500x2  after that the venture was profitable so he never paid and he didnt commit any 
time in  6 months he only spend 10-15 days avg 1-2 hrs on advicing and i myself spend 18 hrs a day in coding and business 
development.<p>After repeatly warning him i dedicided yesterday asked to  not to do any futher business with him and pay him for the 
expenses  and he got  mad hearing this he threatened to sue in  U.S court and file a grandtheft against me he says i will never be 
able to step in US or do business with a US company if i dont give him 2000 USD right now plus 50% of the company.<p>I feel cheated to work with someone who cannot commit time and effort  as much i do in the venture.<p>All agreements we had were via chat and voice and not in legal sheet.<p>The company is a not us company but must of our customers are from u.s.<p>Please advice<p>Thank you !
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petervandijck
"I dedicided yesterday asked to not to do any futher business with him and pay
him for the expenses". I'm sorry, you are wrong here. He took risks. You can't
just "pay him for expenses" and expect him to give up his part of a profitable
business.

If this company made 4000 US$ in a week (as you say), it is worth a lot of
money and you will need to negotiate with him. Offering to pay him 1000$ for
his part (ie. "his expenses") is ridiculously low.

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unexpected
Dude, it's not worth his time to sue you for anything less than $5k. Lawyers
are very expensive here.

I would just incorporate on your own, in India. Run your business as if he
didn't exist. He won't do anything.

~~~
seanlinmt
Not worth it now but what happens in the future if his company does well and
the cofounder comes looking?

~~~
Kliment
Comes looking with no contract and none of his own commitment to show? At
least the Facebook case had a signed contract that could be dug out, and
proofs of payment.

~~~
seanlinmt
IANAL but a verbal agreement can be a legally binding contract.... which can
be hard to prove in court.

But apparently if you have been paid for a job you agreed to do then that's
considered a contract even if no documents were signed. If there are any
lawyers out there please correct me.

~~~
unexpected
A contract is for a fixed amount - not for an equity sharing agreement. When
the initial $500 was invested, papers should have been drawn up saying, "okay,
i own 50% and you own 50%". A $4000/week business is easily worth $1 milion.
The guy sees that and is now trying to sneak his way in.

People often try to take credit for your success, but back away from your
failures. Since OP presumably has a $1 million dollar idea, he could get a
MUCH better valuation - give away 20% for $200k.

------
bcrescimanno
What you've written is quite contradictory; for example: why does he want 50%
of a now defunct company?

You said that you made 6k in one week; after saying that you've been working
on this start up for 3 years. Is the $4,000 the entire profit this company
made over the course of those 3 years? Based on these inconsistencies, I'm
finding it hard to follow your story.

To start; IANAL so YMMV.

It sounds to me like you went in with different mentalities. You were a
founder; he was an investor. I realize that from your perspective, "he didn't
put as much time in" as you did; however, you agreed to give him some share of
the company for his monetary investment. That said, it sounds like the
valuation agreed to was $6,000 when he invested and that by contributing
$3,000, he would own 50% of the company.

However, if he only invested $1,000, then he actually bought only 1/6th of the
company, not 1/2. My calculations say you owe him approximately $1,680 which
includes returning his initial investment and the profits from a 17% share of
the company (which he really does own whether you like it or not).

All that said, if he can document actual material contributions to your
products, he quite likely has a legitimate claim for a higher share.

The lesson here is NEVER do business in any form of partnership without a
written agreement as to the ownership levels, roles, and responsibilities of
each partner.

~~~
hack_rohan
We both were working on an ad start-up since last 3 yrs that stopped earlier
this year then i was doing a side project which i launched that the side
project made 6K in one week

~~~
bcrescimanno
That makes more sense then. That said; my original comments still apply.

------
dschobel
_All agreements we had were via chat and voice and not in legal sheet._

Chat/email/voice are more than sufficient to establish a contract in the US
legal system. Read the introductory "elements of a contract" section from
here: <http://www.expertlaw.com/library/business/contract_law.html>

~~~
gte910h
Depends on the amount. It really depends what _US STATE_ the man was in
whether it does or not. For instance, anything 1k or up must be in writing in
Georgia.

What you can do and what you should do are different things. If he's not
keeping up his end of the contract, then _sue him_ in the country the company
is registered in. Don't give him time or the benefit of jurisdiction in any
legal action. If you just don't like the guy, he likely still owns part of the
business.

~~~
jtbigwoo
> For instance, anything 1k or up must be in writing in Georgia.

IANAL, but chat or email probably count as "in writing."

~~~
gte910h
Email? Possibly. Chat? Dunno, but not very confident it would be held up.
IANAL either.

------
Tyrannosaurs
(Not a lawyer and this should not be taken as legal advice, just my two cents
worth.)

It does sound like bluster. It's certainly not grand theft (which would be a
criminal matter), it's a contractual dispute. When people start throwing
around legal terms they don't understand I always suspect that they either
aren't serious, or that they know so little that their intent is irrelevant as
it's likely to change when they learn the reality of the situation, the likely
costs and so on.

My guess is that if you made him an offer - possibly just 50% of profit to
date - he'd accept and go, but what you need to make sure is that any deal you
do with him makes clear that the payment is made in full and final settlement
of the matter.

In the UK full and final settlement is a specific legal term (I'm guessing
that there is a US equivalent) basically meaning that the matter is settled
and the other party can't then return at a later date with a further claim.
This should be stated clearly in the accompanying letter (make sure the letter
and payment are signed for and you record all details) and also make it clear
that by cashing the cheque he waives any right to further payment or claim
against you or the company in relation to any business dealings you have had.

But the point others have made is valid - just because it's not worth him
suing now don't assume it won't be worth it in the future.

------
hack_rohan
I own the company at the moment i repeatedly request to form a u.s corporation
with the money we got he was avoiding to do so bcuz he wanted to make sure we
make 50-100K before we make any company which sounded fishy to me.

~~~
davidw
Ah, well in that case, perhaps it's your erstwhile partner who is screwed. If
you have the company and physical control over the site, domain, etc... it
sounds like it would be difficult for him to actually get at you.

By the way: when replying, use the 'reply' link.

~~~
patd
He could still sue but : \- Does a US court have jurisdiction on a foreign
company operating from a foreign country and that has no legal entity in the
US ? \- Even if they could, what can they do other than prevent that company
to make any business in the US ? \- And then, can't the OP just make another
company in his country that would buy the assets from the previous one ?

(I don't know the answers to those questions)

~~~
unexpected
no, it's near-impossible to sue unless they have a physical presence in the
United States.

Additionally, an American investor can't be an individual investor in an
Indian corporation.

If they really wanted to be on the "up-and-up", the American investor would
have set up an American company, with the Indian company as a 50% investor.
Then, the Indian company would sign a legal document assigning all copyrights
to the American company.

Since nothing was on the up-and-up, and nothing was even signed (I hate
email/telephone contracts), the American investor has very little leverage.
Since he's threatening to sue, I would exploit it.

------
rfrey
Although I agree that nobody is going to sue anybody in this situation, I'm
curious about the technical legalities.

Could the "new venture" be viewed by a U.S. court as a continuation of the old
venture? Could the acceptance of the $1000 salary in the first two months be
construed as a contract of some sort? Also, the OP says in a comment that he
requested that a US corporation be formed, so there are probably emails to
that effect. Would such a request be considered to mean there was a
partnership in place already?

Again, I agree with other commenters, there will not be a lawsuit over $2000.
But the 50% of the company could be enough incentive if you were successful
enough, so the OP might want to get solid on where he stands. It sounds to me
that there's a bit of a backstory, maybe enough to make a court look twice.

~~~
petervandijck
It's not over 2000$, in the post he states that they made 4000$ in a week.

------
lionhearted
Well, there's two sides to every story. He fronted you cash on a project with
some risk of it going nowhere, and he did contribute time as well. He's got
some legitimate ownership claims.

Now, you feel like he's not worth what he's getting, and this happens.
Actually, one of the most common reasons partnerships break down is because of
perception of the other guy's work rate.

I'd look to negotiate a buyout for him. He does own some of the company. On
your side of the story, it looks horribly unjust. But you know, there's his
side of the story where he spends time thinking about the company, consulting
with you, risks his money, etc. He's probably feeling like you're trying to
screw him and that you're being terribly unfair as well.

Try to negotiate a buyout that includes him relinquishing all ownership of the
company. He did put time and money into this and backed you with no guarantee
of return - he's entitled to something. The court thing is a non-issue at this
stage unless he's really vindictive, but it'll be like an ax hanging over your
head forever if your project is successful, or you want to hire, or raise
money, or anything else. Try to buy him out and go on your own way. When you
negotiate, don't tell him how unfair it is, etc, etc. This just ticks people
off without accomplishing anything. Just focus on how you don't think this is
a good partnership any more, and you're sorry it didn't work out, and after
thinking about it you'd like to buy him out, and then make a low offer and
come up a bit.

~~~
unexpected
I agree with this - just remember that under no circumstances should you give
away equity of the company. Tell him that if he wants to own 50%, he has to
pay 50% of the costs as well. Tell him you're going to rapidly expand and ask
him to commit $50-$100k (that you could easily seek from outside investors) or
he's going to risk being diluted. I bet you he will change his tune.

~~~
hugh3
Also, to be realistic having an antagonistic relationship between the two
owners of the company is going to be poison. The other guy should understand
this; if he owns half the company then hack_rohan is probably not going to be
terribly keen on continuing to work on this company.

But certainly the other founder is entitled to a lot more than a thousand
dollars here (though there's some vagueness in the description). A good
negotiating position might be to tell him he can have half the company _or_
the $2000, and plan to get bid up on the $2000 side somewhat.

~~~
unexpected
I'm not even sure how they would go about creating ownership in the company.
An American can't be an individual investor in an Indian company. An Indian
without a working visa can't have a startup in a US company. Ownership issues
are convoluted, and would take way more money on lawyer fees to figure out.

Everyone keeps bringing up US laws with regards to ownership, but remember
that this is an INDIAN company, where different rules apply.

~~~
andreshb
You don't need a working visa, a visa, or to even set foot in the U.S. to be
shareholder/owner of a U.S. company.

~~~
Tyrannosaurs
That's true but Indian law is an absolute minefield, particularly for those
not familiar with it. I have a former colleague who is still embroiled in a
case that's been going on for over a decade. Jarndyce and Jarndyce anyone?

It would take a brave soul indeed to get involved in that from abroad with
relatively little at stake.

------
trevelyan
You are acting horribly. You talk about this guy as your "former co-founder"
when he is your co-founder. This is a guy who looked out for you when you
needed help and chipped in money and effort to support the business in good
faith. And not only are you screwing yourself by cheating him, but you are
screwing your fellow countrymen. If there is ambiguity in your original
agreement work it out in good faith.

If you are running the business and he is doing no work on it right now, it is
reasonable for you to pay yourself a respectable salary before sending any
profits back. Plenty of companies don't pay dividends. But unless you are
eager to shoot yourself in the foot you need to send him an email apologizing
for your behavior and putting things right.

~~~
trevelyan
You guys can downmod this one too. When it comes to doing business, your word
is your bond. This guy made an agreement with someone that he wants to break
unilaterally now that he has some money and the agreement is inconvenient for
him. This is a simple question of honesty and integrity.

And I would _love_ to hear from those of you downmodding my comments on why
exactly you think this guy should get a free ride on the do-unto-others
principle. And please post under your real accounts so others have fair
warning when they make agreements with you.

~~~
Kliment
Having an agreement is one thing. Threatening to sue and blackmailing with
invalid immigration-related claims is quite another. I don't believe the
former partner has a case for anything, but if there is any claim, it would be
for breach of contract, not theft. Certainly nothing that would land either a
conviction or a permanent visa denial. This is a scare tactic, not a pursuit
of a claim. It sounds like the two had both committed to work on the company,
but only one really did and he now feels used. Obviously we only have one side
of the story, but from the available data it seems it was not the OP who broke
the original commitment to the company.

Also, how the hell is he screwing his countrymen, as you claim? Are you saying
that because someone got screwed by someone in country X, noone will want to
do business with other people from country X anymore? That makes no sense.

~~~
Uchikoma
"I don't believe the former partner has a case for anything, but if there is
any claim".

That's the reason for the threat. He has no other way.

------
known
Imagine yourself in his shoes.

You shared _risks_ and _responsibilities_ of the venture along with the money.
Keeping aside the friction with the co-founder, you deserve 50% of the
company.

------
brudgers
> _"500 USD for 6 months and also 2 - 4 hrs commitment everyday"_

> _"My co-founder paid for 2 months"_

> _"10-15 days avg 1-2 hrs on advicing"_

Not a lawyer, but based on the post I would suspect that there is a straight
forward argument under common law that the ex-cofounder was in breech of
contract.

------
davidw
> All agreements we had were via chat and voice and not in legal sheet.

Sounds like the whole thing is pretty much screwed.

> The company is a not us company but must of our customers are from u.s.

Who owns the company?

------
Kliment
Sounds like he has no basis. Talk to a lawyer. You should be fine.

------
SHOwnsYou
It costs tens (or hundreds) of thousands of dollars to sue someone residing in
another country... That's if you can even find a lawyer to take the case
against someone in a third world country.

If you feel you owe him more, give him what you think he is worth to buy him
out. If you think you owe him nothing, then cut off communication from him.

He has to sue you in your country of residence so until you start hearing from
local courts, I wouldn't worry.

------
notahacker
Considering how little recourse he has to actually get money from you without
spending far more in lawyer's fees than you're actually earning, I suspect he
might be convinced to sign a document relinquishing any ownership stake in the
company if he is offered that $1000 back...

~~~
hack_rohan
i offered him back 1000 USD but he rejected also said him i am willing to pay
50% of the profit that will be made in next 2 months one time amount for the
money he invested.

~~~
mqmouse
That sounds like a great deal. Assuming you make the same amount of money and
it wasn't an aberration...

2months X 4 weeks X 4K per week = 32K. Minus operating expenses for 2 months
(Let's just use 500 per month here) = 31K Minus taxes (assuming 25%) = 23.25K

$11625 to have a clean corp that grosses 208K a year. Sounds like a no brainer
for me... Pay him off, make him sign a final and complete settlement that
previous poster suggested.

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jkent
It's difficult to sue in another country. I don't think he can stop you
entering the US or dealing with US companies. Just don't respond to him and
don't give him any money. Assume the company is over. Disclaimer: ianal.

------
iainr
What was the 'agreements' you guys made? Was he to have 50% for his advice and
money? Or was he meant to contribute as much time as you did? Any tips for us
on how to avoid a situation like this would be great

~~~
hack_rohan
he was to lead business development with minimum 2 hrs of commitment everyday
which he failed to do

------
hack_rohan
I send 1900 USD now he is telling 50% of any company i do is urs

------
kirpekar
He's going to sue you? Haha, for $5000? Not going to happen. Just ignore him
and move on.

BTW, don't let the word "grand" theft scare you. Any theft exceeding $400 is
called "grand".

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shareme
ahem you have skills to create a biz worth 6k in income.

Your best option, state you are walking away form venture and that if he wants
the 50% you owned to pay up..

Now, when you create the new one..get a lawyer involved and have things in
writing.

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appl3star
kick him out! do not pay!

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hack_rohan
looking for advice from HN readers

