Ask HN: Leaving as founder, what happens with equity? • Hacker News Board

Re: Ask HN: Leaving as founder, what happens with equity?

#21

Post by adamcanady » Thu, Nov 12, 2015, 2:44 PM UTC

jonstewart wrote: post #18

IANAL and a lot depends on the type of company, where you incorporated (Delaware C Corp?), and whether you have any type of shareholder agreement. (This scenario is the #1 reason to have a shareholder agreement.) That said, you presently own vested shares in the company, and that means you [likely] have minority shareholder rights. If the company does not act in your best interests as a shareholder, then you have cau…

> you believe you'll be able to create more value for yourself by doing something else rather than seeing it through with a startup.

Just pointing out that there are other reasons to leave aside from rational economic thought about this individual's expected ability to produce higher output elsewhere. They may dislike the team, pivoted idea, or leadership decisions. But they may also want to keep hold of the equity in case it gets big (or they can sell it or a liquidity event occurs).

Re: Ask HN: Leaving as founder, what happens with equity?

#22

Post by benajibayassine » Thu, Nov 12, 2015, 2:58 PM UTC

clarkevans wrote: post #13

So, you own part of a company as an investor now -- think of it in this context to transform your relationship into a positive one. If they can afford to buy your interest out for a reasonable sum, you might agree as a matter of courtesy. You should carefully engage an attorney to look at the by-laws of the company to verify you are protected as an investor. In some cases, holding onto shares of a company (LLC, for e…

Hi, would you please point me to a link that talk to the potential tax liabilities that you mention could happen in the LLC case. I have spent a lot of money because my lawyer and an investor's lawyer were arguing whether such liabilities exist or not. I walked away from the deal by then but I still want to know whether my lawyer was right. I would really appreciate more information.

Re: Ask HN: Leaving as founder, what happens with equity?

#23

Post by jonstewart » Thu, Nov 12, 2015, 3:07 PM UTC

adamcanady wrote: post #21

jonstewart wrote: post #18

IANAL and a lot depends on the type of company, where you incorporated (Delaware C Corp?), and whether you have any type of shareholder agreement. (This scenario is the #1 reason to have a shareholder agreement.) That said, you presently own vested shares in the company, and that means you [likely] have minority shareholder rights. If the company does not act in your best interests as a shareholder, then you have cau…

> you believe you'll be able to create more value for yourself by doing something else rather than seeing it through with a startup. Just pointing out that there are other reasons to leave aside from rational economic thought about this individual's expected ability to produce higher output elsewhere. They may dislike the team, pivoted idea, or leadership decisions. But they may also want to keep hold of the equity i…

Indeed, those are all other non-monetary ways to create more value for oneself. :-)

I understand the desire to want to keep hold of the equity in case the startup gets big, but having dead weight shareholders is a really good way of ensuring a company doesn't get big. It is hard to judge—maybe the company is really on its way to growth and success and the OP has earned the equity—but more likely it's the psychology of not wanting to let something get away "just in case", and that's not what startup sweat equity is about. There probably needs to be some consideration, but if one doesn't believe in the future direction of the startup, hey, you are getting a whole lot of time and hassle back in exchange for surrendered shares.

Re: Ask HN: Leaving as founder, what happens with equity?

#24

Post by slamus » Thu, Nov 12, 2015, 3:14 PM UTC

clarkevans wrote: post #13

So, you own part of a company as an investor now -- think of it in this context to transform your relationship into a positive one. If they can afford to buy your interest out for a reasonable sum, you might agree as a matter of courtesy. You should carefully engage an attorney to look at the by-laws of the company to verify you are protected as an investor. In some cases, holding onto shares of a company (LLC, for e…

I like this answer

Re: Ask HN: Leaving as founder, what happens with equity?

#25

Post by fudged71 » Thu, Nov 12, 2015, 3:16 PM UTC

If you disagree on strategy... do you think the company has any chance to have a favourable exit in a reasonable time frame? It might be better to keep your equity for now, and let them buy your equity at the next equity round. Cash out and never speak to them again.

Re: Ask HN: Leaving as founder, what happens with equity?

#26

Post by fanzhang » Thu, Nov 12, 2015, 3:21 PM UTC

It will be legally hard for them to "reset the entire equity metrics" if they're using similar ideas and codebase to your company. But if they work on a separate idea not related to the old company, this seems much more possible as then it's the same as them quitting, and then deciding to do another startup.

Another issue you need to think about is how much actual drag you'll cause by holding onto your shares. You should give up half your equity if this doubles their chance of succeeding. This seems more likely if you own a large vested chunk like 30% and less likely if you have just vested 10%.

Morally, you've put in a certain amount of work already, and it's not like everyone forgot about vesting. The vesting schedule is supposed to be designed anticipating that if someone leaves before vesting is over, the vested amount is kept by the leaver. It seems to make vesting pointless if you know for sure beforehand you'll renegotiate a substantially different amount.

Re: Ask HN: Leaving as founder, what happens with equity?

#27

Post by treenyc » Thu, Nov 12, 2015, 3:45 PM UTC

clarkevans wrote: post #13

So, you own part of a company as an investor now -- think of it in this context to transform your relationship into a positive one. If they can afford to buy your interest out for a reasonable sum, you might agree as a matter of courtesy. You should carefully engage an attorney to look at the by-laws of the company to verify you are protected as an investor. In some cases, holding onto shares of a company (LLC, for e…

Convertible note might be a good way to avoid Tax-liabitlies. But check with your accountant/lawyer.

Re: Ask HN: Leaving as founder, what happens with equity?

#28

Post by imjk » Thu, Nov 12, 2015, 4:00 PM UTC

k__ wrote: post #19

twunde wrote: post #7

The equity is vested, you own it. You have no obligation to return or surrender it or even sell it. This is why companies have vesting schedules. Additionally, starting a new company with the same idea with the same team would most likely open them up to legal liability. The only thing to remember is that the equity is only valuable if the company succeeds, so it may be worth compromising by having them buy you out,…

Can't the other owners simply do a "squeeze out"?

Can you explain this?

Re: Ask HN: Leaving as founder, what happens with equity?

#29

Post by 3pt14159 » Thu, Nov 12, 2015, 4:04 PM UTC

I've been in this situation before and I returned the equity because I felt like there was still a lot of work to do. The company ended up selling for $3 million four years later, so I would have make some cash, but I still feel like I did the right thing because I wasn't leaving an angry situation, I felt like they didn't need my expertise after they pivoted.

Ultimately I think reputation matters the most, but if you feel like you are on solid ground here is what I recommend: The company will probably fail, so sell half the shares for a smallish sum and keep the other half in case they really succeed.

Re: Ask HN: Leaving as founder, what happens with equity?

#30

Post by crusso » Thu, Nov 12, 2015, 4:12 PM UTC

Arnt wrote: post #11

ryanbrunner wrote: post #10

Earlier quoted context omitted.

It sounds like this consideration was already made. Only some of his equity was fully vested up front to reflect prior work - presumably the remainder of his equity was vested on a schedule (which at half a year he'd be entitled to none of most likely). If the above is true, then it would be inappropriate to re-examine what amount of equity is fair.

Reexamination is proper because there's disagreement. IMO, as he lays out the facts, he shouldn't give away more than a token amount. But the other founders see the facts differently. So the right thing to do is to agree on what the equity is for and then discuss what the numbers should be and why.

The "right thing" was to agree on that before the work was performed. It's too late to go back on that now. The original vesting agreements are all that should hold. If the other founders want to come to a new agreement with some cash compensation or other special status in exchange for his returning some of the company's equity, that's up for negotiation.