Legal Horror Stories: This series is brought to you by eMinutes.com to help educate and inform young business owners.
Today’s story comes from Emilio Estevez of Cosiety.com. Cosiety is an online platform allowing college students to exchange academic resources based on the courses they’re currently taking. Those resources include notes, used textbooks, and curriculum knowledge.
The Story:
The amount of things a first time CEO has to carry on his back in order to create a successful company is beyond overwhelming. It is nearly impossible to anticipate all of the issues you will encounter with every move. Our major issue haunting us today is a decision we made months ago which now looks like it may have been quite impulsive. However, you rarely notice something was a bad idea until its already taken place and is now a part of history.
When registering our company earlier this year our upper management consisted of myself, my partner, and our mutual good friend. At this point in time we all felt we were in positions that we were comfortable in; me assuming role of CEO, my partner COO, and our friend the CMO. Based on her late entrance into the actual involvement in our operation I believe our personal relationship came into play in the judgement that she was entitled to a portion of the equity of the company.
Disclaimer: Do not mix business with friendship….(reference: nearly every tech start-up partnership fallout).
We split the company in three with my partner and I taking the majority and leaving her with a rather decent portion. Time seemed to go quickly after this point and a lot began to change especially in her life. My partner and I lived and breathed the company but she progressively became less involved. At first it was understandable as an early stage start-up that things have to be done on the side in order to put food on the table and we knew that. However, the time that was put in on the side was not efficient and things started to become clearer. We finally sat down and spoke about it but it was a difficult decision because again there were personal relationships involved. She agreed that it was unfair to the company to be dead weight especially holding vested interest in it. Our relationship was now at an end, and not just the relationship with the company.
Today:
Fast-fowarding to today we’ve made amazing progress and are readying launch for our product, so far we’ve been purely bootstrapping and finally we’re creating buzz. At points like this is always where things find a way to take a turn for the worse. On paper our previous partner still holds equity in the company. After research and involving our advisors it seems that this is an issue that must be handled legally. At a minimum of a few hundred dollars while re-sparking a tarnished relationship it is something that needs to be fixed and might not be pretty.
We’re honestly not sure if since the fallout feelings have changed and if this legal matter in changing the equity will be as smooth as we’d like it to be. Ultimately, my advice is be extremely stingy and careful when forming your company and delegating equity. Be as certain as you can be with the people in your business circle, because it can surely cause you sleepless nights in the future.
How to Handle it:
Its really hard to approach someone you have a personal relationship with and tell them that you can no longer continue working with them professionally. Mixing your emotions with decisions about your business is something you can’t be told not to do, its a lesson learned best through experience. As far as that initial conversation it should be like pulling teeth, quick and to the point. The problem is most people naturally proceed with caution because ultimately this person is a friend. However, business is brutal and personal issues can easily affect your operation. Make that person understand that this is purely a decision made for the business and it is not personal and it is something for the better of all parties.
For others who find themselves in a similar situation they should not let it drag on as we did. If you notice someone is lacking or not giving the amount of effort they should to your company do not be afraid to trim the fat. This does not necessarily mean that you and this person can no longer socialize, it was just something that didn’t mix well with your business.
