Legal Question in Business Law in Delaware

We are cofounder that signed a shareholders agreement 6 months ago. Now to get the investments we need to incorporate. We want to do this in Delaware. The majority shareholder wants us to sign new document which have less clause but one clause that allows him to terminate the founders service agreement without cause... upon termination we have to sell back our stock at nominal value. He claims its standard but i dont want to sign such a bad looking clause....

Is this clause normal as it does not seem to be in our favour. The majority shareholder cN basically make all the decisions and get rid of its co founders without cause.


Asked on 8/31/22, 1:52 pm

1 Answer from Attorneys

Roman Fichman Esq. Law Practice of Roman Fichman Esq.

Generally speaking, if an entity was not formed then you may not actually have a shareholders agreement. Irrespective of the title of the agreement, you may in actuality have a partnership agreement which may or may not be applicable to the new entity that will be formed.

As far as what the other partner is asking, early stage founders do sometimes enter into agreements whereby their service may be terminated and they would have to give up / sell their shares HOWEVER one has to review such agreements very carefully and make sure that founders that such termination of services is clearly defined, and that that other co-founders of a similar status are also subject to similar terms.

You are justifiably uncomfortable as you should be and I must commend you for not ignoring this. With that said it seems that you need to consult a startup attorney to make sure your rights are protected -- not only for your own sake but also for the sake of the company, because investors who will spot the inequity between founders will be hesitant in investing in a company where one founder exerts so much unilateral power over the other co-founders. Contact me directly

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Roman R. Fichman, Esq.

www.TheLegalists.com

email: Info (@) TheLegalists (dot) com

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Answered on 8/31/22, 3:36 pm


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