thought startup documents were just necessary and standard paperwork. The four of us co-founders went to lawyer who helped us
incorporate and gave us a Shareholder’s Agreement and Option Plan. I read all of it but didn’t really
understand what it meant and didn’t think it was that important. We each
got 25% of the company. These were Restricted Shares, which vested over time – 6.25%
for each of us each year for 4 years.
After six months one of the cofounders
decided to leave the company and move away. He wanted to take his share of the company, which he thought was 25%.
He was told that he did not have any shares as the stock did not vest until
after the first year. The situation
turned nasty and interpersonal. He hired a lawyer who threatened to sue the
company. They claimed that the shareholder agreement was not adequately
explained to him and that it was the company’s responsibility to do so. The company did not have any money to meet
legal cost and settled by giving him his first year’s shares, 6.25% of the
2, at the first fundraising, the absent cofounder refused to agree to the terms. He was able to do this because decision-making called for
unanimous approval by shareholders. So, even though the rest of us, who owned
93.75% of the company agreed to the terms, the
deal was held up and our investor moved on because of this one guy.