I do a lot of work with cofounders and partners. I am generally brought in either at the beginning of the relationship when everyone is excited and happy or much later on when the relationship is strained.

My work upfront is spent helping founders and partners talk through and structure their relationship, so that it has the highest chance of success. This is time well spent on the front end.

My involvement later on in a partner and founder relationship is often when things are blowing up. When I talk about my involvement here, I break my services into dispute work and mediation services (You can read more about my dispute & mediation services further down the page). I use the word “relationship” a lot. Business partnerships are like marriages. A business partnership is a very significant relationship in a person’s life. When you form a partnership or join up with cofounders, you don’t just enter a contractual relationship. You form a separate thing that needs its own care and attention. If it flourishes, the sky is the limit for the business and that can be very satisfying. If it languishes, the business partnership will almost certainly not meet its goals or potential. And, if you must end a business partnership, like a marriage, it’s not easy and can be an emotionally grueling process. I always keep the relationship front and center in my mind when helping partners and founders structure their deals and resolve their disputes.

A quick word about words. I often the words “partner” and “founder” interchangeably. I do that because clients don’t usually draw a clear distinction between the two terms. Two partners who form a company together are both founders. Each partner is a cofounder. Technology companies use the words founder and cofounder a lot. The word founder does not have distinct legal meaning. In other words, it can mean different things in different contexts. Generally, it means a person involved in the company at or near the beginning who has equity/ownership and a significant role in the management of the company. Most people define a founder as a person who helped launch the company and, because of that, it carries a certain connotation and is generally considered a badge of honor.

The word “partner” has legal meaning. Partners owe each other fiduciary duties. Fiduciary duties are a high standard of dealing with each other. As a lawyer, I owe clients fiduciary duties. This means that I have my clients’ best interest in mind. I must be honest, loyal, fair and treat them with good faith. In a nutshell, it means I have their back and will protect them. Their interests come before mine. This is what the law says partners owe each other, as well. Some founders are partners and vice versa, but not always.

Partners and Cofounder Formation

If you are just beginning a partnership or other relationship with cofounders (launching a startup together), you only have one opportunity to build a strong foundation from the get-go. I believe this is important if you are going into business with your brother or your spouse and I believe it is extra important if you are going into business with someone you don’t know all that well. Launching a business with someone is a huge undertaking. It’s exciting, but it carries some risk, which you can mitigate by spending a little time in the formation process and doing it right.

Strong partnerships start with strong founder/partnership agreements. The reason you need to create a solid partnership agreement isn’t why most people think. It’s not because you want an ironclad contract to enforce if things go wrong. You want that, although this is the third most important reason to go through the process of creating a clear, solid founder’s agreement.

The single best reason to spend time creating a strong founder/partnership agreement at the start of the business is to talk through all the important considerations, to be sure you’ve come to agreement on how things ought to proceed. This includes what you each expect from your relationship together. Some of the things I talk about upfront with partners and cofounders are:

• How will you divide up ownership (equity percentage)?
• Will your equity interests vest over time, so that if one of you leaves before the vesting period is over they won’t keep all their equity?
• What will each person contribute to the venture (e.g., time, money)? If someone contributes money, will it be a loan or paid-in capital?
• How will you make day-to-day decisions? Will you each have officer titles and certain roles and responsibilities?
• How will you make more significant decisions (e.g., borrowing money, admitting new partners, selling the company – the types of things that owners typically decide)? Will this be done by majority vote, super-majority vote (varies between 60%-80% generally) or unanimous vote?
• Will you draw salaries?
• How much will you each work? How many hours per week?
• Will you be able to freely transfer your ownership to a third party?
• What happens if you disagree on an issue? If two founders each own 50%/50% or any decision requires unanimous vote, there may be deadlocks. What will you do about that?

I encourage founders to talk about their goals and expectations. Why are you each doing this? Some of these things go into the founder documents, some of them just help foster understanding and mutual consideration.

Issues around dividing up shares of founder equity are always interesting conversations. Splitting founder and partner equity is more art than science. There is no easy way to answer the question about how much equity each cofounder should receive. There are tools out there, such as foundrs.com, that help guide these discussions. That’s all they are – guides. Diving up startup equity is always negotiable. I am happy to give insight into the process, although I am careful not to make direct recommendations if I am representing the company as this is an issue that each founder/partner needs to resolve for themselves. There is no right way to divide or distribute startup equity. I will say that venture capitalists are generally drawn to startups with multiple founders with fairly even equity splits. Solo founders or situations where one founder has the lion’s share of the equity are viewed as risky situations for a number of reasons.

Spending time upfront talking through and documenting your partnership agreement does a few things:

• It ensures less potential for argument later on since arguments are more likely to arise over things you haven’t yet discussed than things you have
• You may learn that you and your partner have very different views on the way something should be done, in which case you may decide not to work together at all or you may come up with a compromise or work-around. Either way, having this information is critical
• It helps foster understanding and connection, which are the lifeblood of strong, mature relationships

To read more about this primary benefit of strong founder agreements (actually, any business contract), visit  The Most Important Reason to Create a Business Contract

The second reason you should create a strong founder/partner agreement is to make a record of your agreement. People are prone to misremember or change their mind and pretend they don’t remember. It happens. A clear record of the deal is helpful.

The third reason you should have a strong founder/partner agreement is the one I mentioned earlier — in case one of you needs to enforce the agreement. This is the third reason because you are hoping the first two reasons make enforcement unnecessary. Enforcing an agreement means your business relationship has soured and that is never a good thing.

My work with partners and founders creating and documenting their agreements upfront is often done as counsel to the company itself, not to the individual partners/owners. It doesn’t always have to be this way, although because the startup formation and launch process is usually collaborative and amicable, if I represent the company and each founder/owner does not feel the need to have their own individual legal counsel, overall legal fees can be kept down.

Last point on partner and founder formation issues — The internet is an amazing and empowering tool. Sites like LegalZoom and Rocket Lawyer have made it really easy to obtain standard contracts and other documents. If all you need to do is file a Certificate of Formation or Articles of Incorporation, LegalZoom will get the job done. When it comes to a founder or partnership agreement, a template contract rarely works. Every relationship is different and you want to be sure your agreement mirrors what you and your cofounders want. This almost always requires custom drafting from an attorney. I’m not angling for business when I say that, it’s simply true.

Partner and Cofounder Dispute Resolution

Sometimes despite your best efforts, a business relationship with a cofounder or partner goes south. Sometimes the relationship can be saved and other times it can’t. If things are quickly getting nasty, it’s a good idea to have someone in your corner, representing your interests.

Occasionally I will represent a partner or cofounder in a dispute with their other partner(s) or cofounder(s). Other times, I represent the company in a situation where one of the partners or cofounders has gone rogue.

Step one to resolving partnership and founder disputes starts with looking at the founder and corporate governance documents. These documents, when properly drafted, will explain how to handle disputes. Founder documents carry all sorts of names, depending on the type of business entity and the overall structure of the partnership relationship. Documents I am typically looking for may be called:

• Partnership Agreement or Limited Partnership Agreement
• Shareholders Agreement or Stockholders Agreement
• Bylaws of a corporation
• Founders Agreement or Cofounders Agreement
• Company Agreement, Operating Agreement or LLC Agreement
• Stock or Share Purchase Agreement or Vesting Agreement (or Equity Vesting Agreement)

If you need someone to help you navigate a dispute, to enforce your rights and have you back in a partnership or other founder relationship gone bad, I can help. You can reach me at 512.888.9860.

Other times, you don’t need your own legal counsel to protect your specific interests. Sometimes you and your partner need an impartial person to help you work through your partnership disagreement. In this context, mediation is a great tool.

Partner and Cofounder Mediation

Litigation and arbitration are rarely preferred approaches. Litigation is a necessary tool at times, although even the litigators will tell you that very often neither party comes away feeling like they won. Litigation is slow, expensive and decisions from courts and juries are not perfect – they make decisions without knowing absolutely everything that happened and without full knowledge of the relationship that is affected. And, it’s not the job of a judge or jury to help preserve the relationship. Arbitration is often just as expensive as litigation and it just as acrimonious. They are both poison to relationships, not to mention your wallet.

Mediation is a much quicker, simpler and less costly option. Most business disputes can be mediated in a half-day session. Since mediation is collaborative, whereas arbitration and litigation are adversarial, mediation requires each party to participate fully and openly. Otherwise, it’s a waste of time, which is why some attorneys don’t like it. My experience is that it is a very good use of time and money. Sometimes what people really need is time to tell their side of the story and a neutral person to give some thoughts and insights and to encourage repairing and saving the relationship. If you and your partner are willing to talk and to try to work things out, mediation is a great tool.

My structured mediation process is based on a unique and proprietary philosophy. I believe that the most effective mediation involves the parties working together in a non-judgmental environment. In one my mediations, you and your partner will each have an opportunity to present your point of view to each other and to me. I will encourage you to talk to each other, focusing on facts and the impact events had on you, rather than slinging accusations and demands at your partner. I will also spend a significant amount of the mediation with you each separately. I always read the mediation briefs and come prepared with intelligent questions aimed at getting each side to flesh out its position. You can attend a mediation with your legal counsel or without.

Some business partners want me to decide their issue, basically to serve as a judge or referee. I am willing to do that under certain circumstances. My decision is not binding on the parties in the way that litigation or arbitration would be, although for business partners that want to work things out and just need an impartial decision-maker, my dispute referee services may be the perfect solution.

My Mediation Services

If you are having problems with your partners or cofounders and you are not able to work things through amicably, mediation may be an option for you. I am a certified mediator by the State Bar of Texas.  While not exclusive, my mediation services are primarily focused on partnership and founder disputes. My mediation services are always confidential and they are meant to preserve and, if at all possible, save the underlying relationship of the parties.

If you’d like my help mediating a business issue, contact me at 512.888.9860.

“Brett’s approach to handling partner and founder issues is very relational. It’s not soft. It’s just respectful for the emotions of the parties. I have seen him in action and it’s impressive. Even if the business relationship can’t be saved, his approach will help you achieve your goals in unwinding the relationship. He knows the law. More importantly, he understands people.” – Rudy R., Business Owner (Houston, Texas)