One of the best things about running a business is running it with other people.

You can only do so much when you are working alone.

But with others? 

There's a unique perspective and skills that you can have access to.

But working with others also comes with its own set of challenges.

Especially when it comes to making sure everyone is on the same page.

Or the amount of control a person has over the business.

In this case study, I share with you some troubles one of our clients wanted to solve.

Our client was running a tech business with his co-founder.

Everything was going well from the beginning.

But now, as the business was growing, they needed some kind of formal arrangement between the founders to protect their rights and the business.

Hence, they approached us for advisory and drafting appropriate agreements for them.

Problems:

1) Ownership Stability Worries:

The client was worried about 50:50 ownership in the company filings.

What if one of them does nothing in the company and doesn't even transfer ownership?

What happens in such a case?

The client needed to make sure such cases were taken care of.

2) Balancing Autonomy and Joint Decisions:

The client wanted to divide their roles and give each person some autonomy but still prevent any unilateral major decision for the company.

And finding that balance is always challenging.

3) Deadlock Prevention and Resolution:

The client wanted to have safeguards in place to prevent and resolve deadlocks in decision-making.

Deadlocks are cases where the founders have opposing views on a situation.

And the action that should be taken in that case. 

Solutions:

1) Ensuring Stability in the Company

The company filings already showed their respective shareholdings.

So we needed a vesting schedule so they don’t just keep their ownership while doing nothing.

The vesting schedule also ensured they didn’t sell shareholding after a financing round.

2) Dividing Roles

A general division of roles and their respective duties were specified in the document.

But reserved certain important matters for the approval of both founders.

For dealing with deadlocks, mechanisms for dealing with such situations were specified.

This included amicable resolution and forceful exit, but only as a last resort.

3) Safeguarding the business

We also accounted for contingencies when any of them wanted to leave the company.

This included pre-emptive rights i.e. offering shares to the non-exiting founder first.

The shareholders may change, but the business must be sustained.

So we included provisions for non-compete, non-solicit, and the protection of proprietary information.

The overall project was a success.

With a co-founders agreement in place, the founders were sure on:

1) What happens if a person leaves the company

2) What are the roles and responsibilities of each person

3) The founders worked for their shareholding

Here's another tip:

Do you know when's the best time to enter into a mutual arrangement with a co-founder?

It's as early as you can.

Because then there are fewer chances of resistance.

If you are working with someone without a co-founder's agreement, now is the best time to do it.

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