Legal Question in Business Law in Delaware


I started a Tech company 5 years ago with 1 partner (50/50) and the company has not done very much since. The company is a Delaware company and we are located in California. Last year we hired a CTO and the company is in much better shape today. However, the only worth to the company is the code, as we have no users. For the past year, my partner has been MIA. He won't answer texts, calls, emails or anything else, although he posts on Facebook all the time. There are a lot of papers he refuses to sign, even papers from years back that he never signed. He and I are the only members of the board and I can't move the company forward without him. I am not trying to take away his equity, just his power so I can actually do something with the company.

I would like to know what my options are. If possible, I'd like to start a new company with just me and our CTO and if the company ever becomes anything in the future, I'll take the lawsuit or settle with my partner. I don't mind that at all, he definitely earned something and I'll be happy to let him get his fair share. Another idea is to create another company that buys the current company where his shares are diluted (basically what Zuckerberg did with Facebook) although I don't know how I can sell the current company to the new one without his signatures.

The bottom line is, now the company has a chance to grow and we're totally stuck because the partner, as far as the company is concerned, is dead but still alive enough to stand in the way and keep us from getting anything done legally. We can't hire anyone, raise money, or pretty much do anything at the moment.

Any advice would help, thank you!

Asked on 8/15/20, 11:08 am

1 Answer from Attorneys

The Bylaws (for a corporation) or Operating Agreement (for an LLC) should have provisions about dissolution (what triggers it and/or what the procedure is). That is the first thing to check. Of course, from what you describe, they may not even have been formally adopted by the two shareholders/members.

If you are unable to act due to the Bylaws/Operating Agreement situation, one possibility may be to start a completely new company without your co-owner and have the new company purchase the code for a fair price. Then you can tell your partner (both through formal communication but also perhaps a FB post) what you have done. Assuming the code is formally owned by the original company, he could object that the sale is not authorized but, as you say, you are willing to work out a settlement with him. Plus you may get him to respond if your message is that there is money here waiting for you. There are more nuances to the situation than can be covered in a general informational post but this gives you a little information to think about.

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Answered on 8/16/20, 9:24 am

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