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.

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.

Answered a year ago

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