I have a partner who did not do what he said he would do. Now he has equity but is uninvolved. What do I do? I'm really wondering if I should just dissolve the company and start a new one, but worried of the legality of this. Not looking to spend $10,000+ on legal fees to challenge their equity shares.
What tactics have you already tried? Is there a way to co-create some new expectations going forward? For example, are each of your roles and responsibilities outlined in writing? Would your partner be open to creating a new partnership agreement around agreed upon roles and responsibilities? Perhaps a facilitation of this conversation between the two of you would help. A business coach could serve as a neutral third party and help you find a mutually beneficial solution.
A complex question with many variables to consider before you form your strategy. If he was/is your partner, he brings something to the table that also brings leverage into the value of your business relationship with him.
Consider not only the startup cost of the business and market/economic barriers to replicating/repeating your product or service under a new entity, but also the reputational value at stake in terms of current customers or secondary relationships or affiliations that revolve around your partnership. That is, you could jam the guy and save money in the short term, but what other long time value, network or otherwise, are you leaving on the table, losing out on now, or damaging later?
Where is his leverage (beyond equity) in terms of the business — network, product expertise, current or future cash investment? Where does your leverage and work commitment position you? What does your current social contract and written contract look like in terms organizing documents, hiring agreements, and any other emails involving work or partnership commitments?
Usually a partner being absolved removes a lot of value from the business while also freeing up equity. Depending on the value and performance of the business, it may make sense to maintain the business without dissolving it. So long as there is no non-compete, consider adding leverage by diversifying. Nothing is binary. You don’t have to dissolve if there is future mutual value in your partnership. If startup and operating costs are low, you may want to consider having more than one business active and running. Have both.
It's not always a black and white situation. When there is conflict, it is ALWAYS the best way to start with a good casual meeting with the entity involved (bar, restaurant) and loosen up the pressure that normally both sides feel for that many reasons. You should first try to find a beneficial solution for both. You should try to understand what he feels his contribution to the current moment is, and what is the reason he is uninvolved. If he just don't have the time, or other reason, you should together find a solution to compensate both him for the contribution, and possibly you for missed opportunities. As suggested above, you can offer him a buyout valued at his contributiions, or if possible to split assets, and provide him with assets of that size.
I can't tell you how many times I've written an answer like this before. Never confuse equity and ownership with employment. Although many people have both, they are not necessarily joined at the hip.
Is your question related to what your partner is not doing as an employee or as an owner? As an employee, he can be fired for not performing his duties. An owner can't be fired unless he's an employee. Hopefully you have a partnership agreement that deals with relative duties and what happens if either partner doesn't fulfill his duties.
Do you have a board? If so, then they can intervene. If just you and he are the board, then I'd hire a mediator to help you get through the crisis.
If you don't have a partnership agreement and mediation isn't successful, then, yes, dissolve the company, start a new one and hire a lawyer to draft a bullet-proof partnership agreement. $10k is small money to pay for peace of mind and for a successful company.
If discussions are not making progress and a mediator cannot make headway either then perhaps you going legal is what he wants. Discuss your options with a good lawyer and try to reason with him. Weigh your options carefully because time is money and perhaps your idea of dissolving the company before going further down the road may be the best option.
Are the expectations originally outlined realistic? If your equity partner's responsibility is to deliver customers, but he's finding that there is minimal desire for your product/service, his ability to deliver is hampered.
I suggest a non-judgemental conversation where you discuss what, if any, obstacles he is encountering or if his interest in your company mission has changed. Often equity partnerships can be dissolved amicably, but do invest money to do so legally. You do not want to hold future earnings hostage.
Business relationships resemble love relationships in that trust is imperative inside that relationship. Ask yourself, is this a common pattern that you have always seen with this partner, which you have chosen to ignore? Is it a recent development which could be connected to some personal issues he/she is going through? Finally, is this a very rare hiccup that has occurred but you have always been able to count on this partner in the past. Analyzing these three perspectives could help you to decide how to proceed from here, but do also be aware, if something underlined issue is brewing between you and the partner or this partner and someone else, he/she could be using a passive-aggressive behavior designed to sabotage the project in order to humiliate someone in the company. Try to explore as many perspectives as you can...keep a journal of your thoughts and possible solutions. All the best
I would do in the opposite manner. Consider the "life (business) after the split". What you are going to miss - technology, money, market, relationships ? And, of course, subtract the amount of the splitting cost. Consider the worst case, and may be that will be result you would get.
Is that acceptable for you ? Is the business going to survive ?
If yes, go in splitting. Better suffer financial losses, but work for your ideas, which eventually would flourish.
If not, apply humility and go for fair and friendly talk with the partner. Remember, at the beginning something made you together.
There are many simple ways to fix this.
Likely best if you book a few calls with people to explore your options.
Look for Clarity posters which seem to... speak your language... and reach out to them via phone to resolve this problem.
Tip: You should not be posting anything about this online.
Better to fix problem with no public footprint.