Founder Disputes

Internet, technology, and interactive media companies are often founded without any formal agreements, or with agreements that are light on details. And in the fast-paced world of internet start-ups, the race to build value and build a valuable team often overshadows the need to document the details of who owns what, the responsibilities of each founder, and what happens if there is any dispute between founders.

In fast growing companies, often a great amount of a company’s value is created very early, with founders making decisions about business models and market positioning that will either sink a company or put it on the path to explosive growth. So when there is a dispute among founders after a company has already experienced explosive growth, a great amount of value, and money, may be at stake.

There are a variety of arguments that may be available against a co-founder if there is a founder dispute. Directors of companies have fiduciary duties to the company and its shareholders, and a co-founder who takes action that benefits her or otherwise hurts other founders may be in breach of these duties. If the company was not formally formed as a corporation or LLC at the time, then co-founders still owes duties to their co-founders under partnership law. Furthermore, there are also property-based arguments a spurned co-founder may have against co-founders if co-founders deprive fellow co-founders of the property rights inherent in the ownership stakes in the company. Also, founders and early employees may have been promised, orally, by email, or in some other informal way, that they would receive stock or other equity interests in the company. These promises may indeed be enforceable, even though they were not formalized in legal documents.

Kronenberger Rosenfeld represents founders and early employees in disputes with their companies and co-founders. Our experience combines a great amount of knowledge about the value that is created early in a startup, with years of experience in litigating issues for internet, technology, and interactive media companies. And we often represent founders in a way where our compensation is tied to our success.

If you are a founder or early employee with a dispute with your company or other founders, contact us to discuss your options.