Co-founder left on good terms, now what?

[stas]

Our Startup Incorporated (Delaware C crop) in January of this year - I wanted to bring a developer friend of mine on as a co-founder (CTO) at the time but he was not available to join us. However, we got another dev on the team as our Co-founder and he has been such a blessing for us. However, recently and for good reason, he is unable to continue with us, he is willing to give up all of his options and willing to sign any document as well (he is a great guy) - I have now talked to the first person we wanted to bring on and he has agreed to join us, so now I am wondering, how do we purchase back any options and give it to the new co-founder? Do I really need to involve a lawyer being that we are just 9 months in?

He did a common stock purchase agreement for 17% and a section 83(b).

In our agreement which is pretty boilerplate it says "(iii). 100% of the Shares shall initially be subject to the Repurchase Option (the “Vesting Shares”). 25% of the Vesting Shares shall be released from the Repurchase Option on January 9, 2024,"

 

[malvern]

@stas Pay for a lawyer and get it sorted. Then ask them to review the articles with you describing what you are trying to achieve and how you think it is structured (this scenario based analysis will build confidence that everyone is aligned).

Now is the time to do it. I would be materially better off if someone was telling me this 5 years ago.

 

[billybob67]

@malvern This is the correct and only answer. Your articles of formation, SPA, etc. are all unique to your company. If you went with templates, you should probably speak with the firm that created them to draft the appropriate docs for him to sign: a separation agreement, repurchase agreement, NDA/IP assignments (if these are not already in place), etc.

I am not a lawyer, but I’ve went through this before. You want this rock solid before any further development; also all investors would mandate that this be in place before a fundraise. If you wait until then, an old co-founder might want something for his/her signature(good guy or not.)

 

[romane91]

@stas Your RSPA is ok as the minimum but ideally, you do a termination agreement that has a mutual release and non disparagement agreement

Get a venture lawyer or feed it to GPT4

 

[anotherblowhard]

@stas A bit confused. You use the term “options” but later say he entered into a “stock purchase agreement”, which implies he received (restricted) shares and not stock options.

Assuming you miswrote and meant shares and not stock options, then based on the agreement as you quoted, it appears that the company can buy back all of the shares for a price that is likely spelled out in the same section of the agreement. It may be FMV at the time of the repurchase or could be what he paid for them at the time of his purchase - you have to look.

Alternatively, if he was granted stock options and not shares, then the question is whether he exercised any of his vested stock options (assuming he had stock options that vested to begin with). If the answer is no, then there nothing for you or him to do. Per the agreement or your Equity Incentive Plan (if you have one), any unexercised stock options simply expire upon his departure (you should confirm). On the other hand, if he did exercise any of his vested stock options (in which case he would now own shares), then the company can repurchase such shares as mentioned in the paragraph above.

Hope that helps. Good luck!

 

[stas]

@anotherblowhard Thank you.

Tbh I am not 100% sure. He did pay $17 for his 17% when we were forming the company as part of the 83b form.

 

[hasta_lavista]

@stas 83b form is just the taxes form AFAIK. It hasn't anything to do with company formation.

 

[anotherblowhard]

@stas If he paid, then chances are he purchased restricted shares.

 

[notloveisnotjesus]

@stas OP, how did you go about finding a developer to bring in? My developer (who I thought was a friend) completely ghosted me and don’t know where to look!

 

[stas]

@notloveisnotjesus They are both good friends of mine, but I had to convince them of the idea.