My partner (by MoU) quit the project and wants to be cashed out. What's the ethical thing to do?

You should always give someone what they deserve. Never more and never less. Most people don't know how to do this so they guess. They try to predict the future or they look for rules of thumb or they try other ways of guessing. Kind of like you are doing now. The best way to determine this is to consider one person's risk relative to others. When someone contributes to a startup company and doesn't get paid they are accepting risk. The value of that risk is equal to the fair market value of the contribution they made. For instance, if you could earn $100,000 a year doing whatever it is that you do and you do it for a startup without getting paid you are, in effect, risking $100,000 a year. Taking risk in a startup company is essentially betting on the future outcome of the startup. If you and I bet $10 on the same hand of Blackjack we are each betting the same amount and, therefore, each deserve exactly half the winnings (if any). So, the right way to split equity in a startup company is to keep track of what's been contributed, then perform this simple formula: Individual Ownership (%) = Individual Risk/Cumulative Risk The model changes over time as more contributions are made. Each day a person contribute their stake would change. This means that at any given time, no matter what changes, who joins or who leaves. Everyone always has exactly the ownership they deserve to have. Unlike traditional models that require us to predict the future, the relative risk model is based on easily observable values in the market. Everything has a fair market value. So, the answer to your question is simple. Add up the risk he has taken and divided it by all the risk taken by everyone (including you). Each person's share can be calculated this way and the total will always equal 100%. On day one, before he's done anything, his ownership will be 0%. As it should be. Over time, as he risks, his % will change based on relative risk. This is a perfect, unambiguous formula. Every other equity model lays the foundation for disputes later on. Only a relative risk model will give you the fair answer. I've written a book on this topic, called Slicing Pie, you may have a copy if you contact me through Clarity.fm or SlicingPie.com.

The paranoia of "my idea is being stolen" is the sign of a highly inexperienced person and also statistically speaking, the sign of someone who is unlikely to succeed. Your skills as a designer and implementer make you highly valuable to many non-technical founders, so you should consider yourself able to pick your partners, and not have to "settle." An idea is worth *nothing* without execution, so I'd suggest that you align yourself with a more experienced founder. Happy to talk through this and more details in a call. I'd also caution you that a contract doesn't provide you full security against this person's deceitfulness or bad behavior.

It really depends on your relationship with this person, which I didn't think you mention. Do you know him and trust him? If you trust him that's fine. The only issue I see is the time zone difference, you'll just have to work it out between the two of you.

Hi! Partner disagreements happen all the time. The good news is, most of the time, they are disagreements that get resolved for the better. I'm a business performance expert, a CPA, a CGMA and highly experienced at leadership and managing companies. Allow me to suggest some options for you. This looks like you and your partner need to reach an agreement on how to operate the company. You can do this verbally or you can do it in writing with an operating agreement. I suggest you get this agreement in writing. The results you seek are to clearly define, and understand between both of you, the way both of you may smoothly run the company. Operating agreements may have many different segments in it including (but not limited to) defining everything from who has an operating role vs who doesn't, your responsibilities, how the company ownership and profits are split, entry and exits of partners and even the method of accounting chosen. Once you decide with your partner who has authority regarding your product direction, the person responsible should provide good leadership to see the products are well developed, and the other should follow their respective role as agreed and defer product development decisions to the other. If one partner breaks out of the agreed role, you should have a private, positive conversation with your partner to set your boundaries and remain in your agreed roles. When this happens, you need to have this conversation within a reasonable amount of time after the disagreement. Don't be afraid of what they think, because your product and your company are at risk. Just be respectful and let them know they crossed the line and ask that they step back behind it. I hope this helps! Please feel free to call me if you need help with this operating agreement, including a sample for your reference. To prepare it, you can expect you'll need a legal expert and a business expert to contribute to your desired operating agreement. Best of Luck! Rodger Stephens, CPA, CGMA Business Performance Expert

I feel your pain — I've been there several times in a couple of my companies. Each situation ended up being unique, and had to be handled differently. I think there are a few things to consider before you make your decision: -- 1. What is in your cofounder's way? Is you cofounder being held up by a lack of clarity? Lack of motivation? Lack of autonomy? One of my past cofounders was very good at getting the job done, but didn't naturally have the skill to lay out tasks in a manageable way. To get around this, I worked with the whole team (4 people) to write up process documentation that removed the need to "figure out what to do next" that was tripping up this cofounder. -- 2. What job was your cofounder brought on to complete? And is it being completed? One of my companies brought on a cofounder simply to give us a marketing platform — he had a huge online audience — but he did nothing else. At first, this caused tension; once we had specifically laid out who was on the team and for what purpose, it was easier to identify where responsibilities lay. -- 3. Is your cofounder capable of doing the job? One of the more painful ordeals I've gone through in business is bringing on a good friend, then realizing that — despite his talent and intelligence — he just wasn't able to perform the job I'd hired him for. His skills were better suited for a different job: he needs hands-on management; he works better with repetitive tasks that don't require big-picture thinking; he lacks assertiveness and confidence, which were critical for the management-level role he'd been hired to do. After I tried to clear everything in his way, it became clear the company couldn't survive if he remained on the team. I had to lay him off. -- 4. Do you just simply not like the way this cofounder works? In one of my startups, there was a cofounder who I didn't know all that well, but he had amazing industry contacts and domain knowledge. However, once we started working together it became clear that we had VERY different working styles. He drove me completely nuts with (what seemed to me to be) a very ADHD-style of planning, with projects starting and being dropped and then coming out of nowhere with a call at 21:00 to discuss something critical that would be forgotten tomorrow. I'm sure I drove him nuts, too. So eventually we ended up selling that company — it was that or shutter it — because we knew there wasn't a chance we'd be successful if we continued as we were. -- Working with other people is tricky in general. Our instinct is to assume that we're the best workers on the planet and everyone else is incompetent, an idiot, a slacker, or all of the above. Usually it's a combination of an organizational-level lack of clarity, poor communication, no processes, and (sometimes) plain ol' we-don't-see-eye-to-eye-on-things-ness. Hopefully that helps. Feel free to get in touch if you'd like to hear specifics on my situations, or if you'd like any help devising a strategy for resolving your cofounder trouble. Good luck!