• February 2019
    M T W T F S S
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What are the standard co-founder exiting terms?

As mentioned earlier, all exiting terms should be included in all of the agreements that you have drafted when the business is incorporated. It is very important that these terms be in writing when the business is incorporated because without it being in writing, it makes it close to impossible to enforce. He said / she said legal cases are very expensive and very hard to win.

With that being said, you mentioned that the co-founder would own less than 50%. The most important standard co-founder exiting issues include limiting the amount of control that the exiting member will have going forward. For example, will this person become a passive shareholder? If so, they would have the same rights as a shareholder. Your co-founder should exit with a fair amount of equity. How you decide on a fair amount of equity can involve several factors including how many other co-founders or equity holders exist. You could also offer to totally buy-out the exiting co-founder. You may find that to be the easiest and most fair option for both of you.

Something else you should be aware of is the concept of vesting terms. How long has the business been active? Are both you and the co-founder fully vested? Vestment will play a large part in determining equity that the exiting co-founder receives. Much like I mentioned earlier with having your co-founder exit terms in writing, make sure that your vestment terms are also in writing at the beginning of the business. It makes dealing with an exit much easier.

Working with a lawyer who places their focus on businesses and their needs is one of the best ways to address this issue before it ever occurs. When your business is incorporated and when all of your agreements are drafted, this is one issue that could be addressed by a lawyer. If you’d like the input of a lawyer regarding your co-founder exiting clauses, check out LawTrades. We’ve helped thousands of founders prepare their start-up documents (including exit clauses!) and we’d be happy to help you, too.

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