A friend of mine started helping with my startup which I have invested $300k and 15 months of my time. I told him my intention to hire him as "co-founder", "equal partner" and gave him freedom to make decisions. For 6 months, did some research work part time, we discussed a few things, he generated a few leads to grow the team. None of his work resulted in any tangible benefit for the company. We never signed any contract or even verbally discussed how much equity he owns. My intention was to allocate him equity based on the benefit he provided to the company and have him grow to be equal partner. He thought that he is actually working as a co-founder or equal partner. He is now claiming 50% ownership based on the "equal partner" term I used. Can he claim 50% ownership without any formal contract written or verbal? Does using the words co-founder or equal partner has any legal implications? Do I owe him for the outrageous number of hours he claims he worked (mostly research and his learning about product) even though there was zero benefit to the company?
You're going to want to "lawyer up" fast if this company is worth anything or will be.
Depending on which way the "cart" faces, this can go either way, based on your "facts" above.
I do think you will have to pay for the time put in, at a minimum.
You may have to give a stake and it may indeed be as large as 50%
Others will likely chime in now that I've changed the category to business.
Good luck with it.
He is free to "claim" anything he wants, and you are free to disagree with his "claims". His claims only become material if and when he files a lawsuit to enforce an implied contract. If he does that, he'll have to prove the terms of the "contract" in court. His proof would likely be in the form of past performance being evidence of the terms. You, of course, would be able to argue against his facts to show that, even if he did perform some work for you, it complied with your understanding of the terms of your initial oral agreement.
But unless he files a lawsuit, you simply have a difference of opinion and you are not obligated to do anything. On the other hand, from a moral perspective, you should try to accommodate him based on your oral agreement. Or you could simply offer him a lump sum payment as compensation for work he has already performed, then terminate the agreement in writing.
No "contract" or "agreement" should be entered into without a writing showing terms of the agreement. Your mistake was in not handling this from the start. Nevertheless, a written termination letter would go a long way towards limiting his alleged damages should he decide to sue.
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Wow. There are so many unanswered and pertinent questions here.
1. Are you formed? How?
2. Did you hold out to the world that he was a "partner"?
3. What is the company worth now?
4. Does the company own physical assets?
5. Are there any foreseeable losses to the company coming up?
Short answer, without knowing any real facts, is that a general partnership can be formed without any writings, so long as there exists two or more people engaged in a common enterprise for profit. Partners share in the partnership assets 50/50 unless otherwise stated to the contrary. They also share in the losses.
You indicated he was an equal partner, well that's what he'll rest on. So the issue you should be thinking about is, "what now?" How do you get out, what can you take with you, how can you reform the company without him involved, etc. If you have no agreements between you, then there's no non-compete or confidentiality between you. That's both good and bad for you because he has the exact same abilities.
However, you seem to be the capital behind the enterprise. So it may be easier for you weather the storm should any losses arise. You can also charge him for half of the costs you've incurred against his "capital account".
In any event, the answer is yes, he can be considered a general partner and you guys in a partnership without any written agreement. I omit verbal agreement since you've admitted you told him your intention to make him an equal partner, but failed to explain to him that it was dependent upon a later assessment of his value contribution.
A person can also be considered an employee of you control when and how they do they're job (among other factors). This doesn't seem like the question you're really asking here however.
This is not advice but a statements of a general nature and not meant in any way to form an attorney/ client relationship. This advice is not to be relied upon legally operative, and not to be construed as advice for any particular matter. Seek a formal relationship with an attorney in your area who can address your concerns and your matter.
Words have meaning, and "equal" is generally not considered subject to more than one reasonable interpretation, but beyond that, there are not enough details to give you a better guess on the chance that you own half as much of the company as you thought you did. Your "intention" to ramp up his interest based on performance isn't worth much if you never communicated it to him--contracts are based on mutual intentions, not concealed intentions.
On the other hand, he probably wouldn't be entitled to both equity and salary unless you were drawing a salary too, which would be somewhat atypical for someone in your position who is trying to get an idea off the ground and sinking your own money into it.
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I cant't answer your question whether you owe him any money, but this situation can escalate into a lawsuit costing you thousands of dollars. Your synopsis of the dispute raises many questions. As others have pointed out, he can claim anything which does not mean that he can also prove all that he is alleging. You should immediately consult with a business attorney to formulate your defense strategies including any counter claims against him and the possibility of an out of court settlement.
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You should consult with a lawyer right away. There is no way to provide a short answer without a properly analyzing the facts.
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