There are legal considerations that you should consider when ‘kicking a founder or CEO out’.
1. Speak to your co-founders
This may not be the first thing you do – but it if you’d like to protect your company interest realize that to be peaceful is the best way to go about it. Be upfront and honest. Explain what your expectations are and what their expectations are. You can propose to facilitate your co-founder’s exit by talking to them and grasping what motivates them. As a founder, you and your co-founder are most likely directors and so it is crucial that you act in the best interests of the company in anything that you do.
2. Look at your shareholder’s agreement
Your shareholder’s agreement will generally provide a huge amount of useful information. A well-drafted shareholder’s agreement will deal with vesting clauses and so you should feel confident that whatever is written in there about vesting terms will normally apply. If hesitant undoubtedly get a second opinion from a lawyer.
3. Look at your company’s constitution
For the UK at least, a company’s constitution (comprised of the memorandum and articles) is the law of the company and so the company and its members must abide by these laws. There may be clauses relevant to your exit, particularly in the articles, so do get this reviewed.
4. Intellectual Property
As a director, you must act in the best interests of the company so do ensure that all intellectual property is properly assigned before your co-founder exits the startup. This could eventually be a lifesaver for the company and so ensuring that all IP is properly assigned is very important – also generally the sign of a good leader.
5. Non-compete clauses
I don’t know what your co-founder wishes to do after leaving, but know that you may want to restrict him/her from working in a competing business, at least for some time. Look out for non-compete clauses in any agreement and make sure they abide by them.
6. Director’s Service Agreement
If they are an executive director of the company, they may also be employed by the company. The terms of their employment are generally mapped out in a document call a director’s service agreement. Look at whether you are required to give a certain amount of time’s notice, whether they are under a fixed term employment contract.
7. Seek the help of a lawyer
Kicking out a co-founder can often be legally challenging. The documents and clauses I outlined below are long, and can be very confusing (sometimes even contradictory!) so it’s important to know which document overrides which. Please don’t take my words as advice and do seek the help of a lawyer!
About Author:
She is the Founder and CEO of Linkilaw, the Legal Platform for Startups. Also a writer, advisor and problem solver. All she do is done with intent and passion. Her Motto was “Happiness is when what you think, what you say, and what you do are in harmony.” – Gandhi
