Last year, I brought on a partner to help develop my business idea and write a Business Plan. I agreed to pay him a discounted hourly rate for the Plan, and give him a minority stake in the company, which I own solely. After I raised some concerns about his performance, he quit, but wants to be paid for the time he invested as a partner (not what he spent on the Plan, which I've paid him for). Our MoU doesn't have any contingencies for this situation, and we have no other Operating Agreement in place between us. There is very little, if any, equity in the company at this point - we haven't produced anything in the market place, have had no income, and all cash outlays (and 80% of non-cash investment in market research, prototyping, validation, consultant vetting, etc.) have come from me.
I can (and will) get legal advice, but I'm asking for the ethical perspective here. What's the ethical way to manage this situation? Thanks for your input.
From an ethical standpoint I would tell him that he cant wait until you have an exit or sufficient cash flow to buy him out.
First he quit. Second, he wasn't performing to expectations, Third, he wasn't there long enough to make much of a difference in the business. You obviously owe him what you told him, but I would not try and perform any superhero feat's to make it happen in the short term.
Having said that, if the amount is minimal and you have the cash you may just want to buy him out now, so that you don't have to deal with him in the future.
Ethical empathy requires you to stand in the other party's shoes and imagine how he is valuing his time and investment in your firm. These situations happen all the time and can either end ugly or neutral but rarely leave (in my experience) all parties jumping for joy. I'd be happy to discuss with you. I have gone through this several times and equally be on the positive and negative side of the situation.