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Ask HN: How bad is the decision to work as a co-founder without legal contracts?

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Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#11

Post by pierattt »

I've spent upwards of $9k in the last few months on legal fees because I didnt have a written contract with an old business partner.

At the very very least, get a specific list of deliverables, your profit share percentage, and his ownership rights to your code on paper, then get him to sign and date it. Be as explicit about everything as possible. Not being able to afford a lawyer is no excuse for not getting your general agreement on paper.

If he resists, remind him that the paperwork protects him as much as it protects you.

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#13

Post by log0 »

ctb9 wrote: post #12

Also, not trying to be rude, but is English your first language? If not, and assuming the venture is located in an English speaking country, I would say that as a non-native English speaker you are more likely to be treated unfairly.

Hi ctb9,

No, I don't take it rude. It's ok. Thanks.

All of the involved people are Chinese in China. I am sure the law differs but the actual smarts might share common attributes.

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#14

Post by log0 »

anamax wrote: post #8

> My worst case : Idea goes live. Initial projection of time dragged. But the organizer plays dishonesty and kicks me / other coders out, taking the whole share. More likely - organizer claims that your contribution is worth significantly less than you think that it is. (Perhaps he'll say something along the lines of "it was my great idea and organization while anyone could have done what you did".) You get a pittanc…

This looks to me a likely and very miserable position to be in, and embarrassing.

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#15

Post by grellas »

log0 wrote: post #6
grellas wrote: post #3

I have represented founders as a startup lawyer in Silicon Valley since 1984. I have done a short write-up on this issue focusing on the risks from a company standpoint of relying on early-stage verbal agreements ( http://www.grellas.com/faq_business_startup_009.html ). From your standpoint, without proper documentation: (1) your biggest risk is getting ripped off for your labor; (2) you would have leverage in that a…

Hi grellas. I have a question I hope you may help answer. Roughly how many percentile in the number of startup cases do have formal legal documentation?

A high percentage when founders believe they have something valuable to protect. In early formative stages, probably only a small minority.

It is all cost/benefit, though. What does it cost to use lawyers? What is at stake? In my experience, it is the rare case where founders will sink large resources into something (significant labor, etc.) without some legal documentation.

Some do LegalZoom, but this has its own problems (failure to use restricted stock and to capture IP being the most important). I have written about this elsewhere.

My general guideline: if a startup has real prospects, it is usually worth investing in legal resources as soon as practicable, even if it means doing a deferred-fee deal with the lawyers. The initial setup itself is usually not that expensive. At the very least, you should go as a team to a qualified lawyer for an initial meeting to get advice about the process - then you will have a basis to make a more informed decision.

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#16

Post by log0 »

michael_dorfman wrote: post #10

How bad? Bad. Very bad. Bad, bad, bad. Did I mention "bad"? I'm not allowed to talk (much) about it, but the short version is: been there, done that, to the tune of several million bucks that are currently missing from my pocket. So, the answers to your questions (in order): 1) Worse than you can imagine. 2) Some do, but not all. Which means, to be safe, you have to pretend no one does. 3) Yes, undoubtedly. There's o…

It seems it's an overall very negative position to be in, aggregrating all the replies.

thanks. I think I need to re-consider again very very seriously.

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#17

Post by log0 »

grellas wrote: post #15
log0 wrote: post #6

Earlier quoted context omitted.

Hi grellas. I have a question I hope you may help answer. Roughly how many percentile in the number of startup cases do have formal legal documentation?

A high percentage when founders believe they have something valuable to protect. In early formative stages, probably only a small minority. It is all cost/benefit, though. What does it cost to use lawyers? What is at stake? In my experience, it is the rare case where founders will sink large resources into something (significant labor, etc.) without some legal documentation. Some do LegalZoom, but this has its own pr…

Thank you Grellas. It is really insightful and informative advice, and immensingly helpful for me to think more.

I will incorporate your suggestions and guideline into my decision. Thank you!

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#18

Post by fatdog789 »

anamax wrote: post #8

> My worst case : Idea goes live. Initial projection of time dragged. But the organizer plays dishonesty and kicks me / other coders out, taking the whole share. More likely - organizer claims that your contribution is worth significantly less than you think that it is. (Perhaps he'll say something along the lines of "it was my great idea and organization while anyone could have done what you did".) You get a pittanc…

Not entirely true -- the presumption now is that the company owns the IP for stuff done on behalf of the company. Of course, this is just a presumption, so it's easily rebutted, by example, showing that you received no compensation (no one works for free).

But the legal uncertainty would discourage investment.

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#19

Post by anamax »

fatdog789 wrote: post #18
anamax wrote: post #8

> My worst case : Idea goes live. Initial projection of time dragged. But the organizer plays dishonesty and kicks me / other coders out, taking the whole share. More likely - organizer claims that your contribution is worth significantly less than you think that it is. (Perhaps he'll say something along the lines of "it was my great idea and organization while anyone could have done what you did".) You get a pittanc…

Not entirely true -- the presumption now is that the company owns the IP for stuff done on behalf of the company. Of course, this is just a presumption, so it's easily rebutted, by example, showing that you received no compensation (no one works for free). But the legal uncertainty would discourage investment.

> Not entirely true -- the presumption now is that the company owns the IP for stuff done on behalf of the company.

Where is this presumption?

Copyright and patent law in the US specifically says that folks earn what they make outside of an explicit agreement otherwise. (And, that agreement can be for no pay - you can work for free.)

BTW - What company? He said that it was unregistered.

Re: Ask HN: How bad is the decision to work as a co-founder without legal contracts?

#20

Post by log0 »

anamax wrote: post #19
fatdog789 wrote: post #18

Earlier quoted context omitted.

Not entirely true -- the presumption now is that the company owns the IP for stuff done on behalf of the company. Of course, this is just a presumption, so it's easily rebutted, by example, showing that you received no compensation (no one works for free). But the legal uncertainty would discourage investment.

> Not entirely true -- the presumption now is that the company owns the IP for stuff done on behalf of the company. Where is this presumption? Copyright and patent law in the US specifically says that folks earn what they make outside of an explicit agreement otherwise. (And, that agreement can be for no pay - you can work for free.) BTW - What company? He said that it was unregistered.

Right. The point is whether someone would register the company only after revenue starts pumping in, which looks odd to me now.
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