Loading...
Answers
MenuHow do I deal with a partner/investor that hasn't delivered on his end of things and now wants his money back?
My investor wanted to partner up instead of just investing, he hasn't met any of obligations as a partner and now I'm stuck with just 50% of my company. We didn't write up a contract so I only have a verbal (email) agreement. He wanted me to pay back the investment money if the startup didn't work.
What should I do? I can't pay back the investment (although I'd love to).
Answers
This sounds as a deja vu to me. I have been in a similar situation back in 2000, we could only solve the issue thanks to a good mediator. However every situation is different and hence your route to a solution might be different. It also depends where you are in the world that defines how an email and/or verbal agreement might be a sufficient ground for legal actions. I am not a lawyer and can not judge that.
My best answer for you is "Maybe you can turn it around by having a new partner buy him out."
I was also in this situation in 2005 and my partner threatened a lawsuit, but we did have a written contract by an attorney. We never had the lawsuit since the contract stipulated that neither party can commence a lawsuit.
My point is that a verbal agreement never works. It is a "he said she said" situation and the "other" party always think they are right and you are wrong. Plus, even if the other party knows they are wrong, they will not admit it. Verbal agreements just never work out.
Most of my business friends have paid under $500 for their contracts since the attorney already has a boiler plate. That amount will save you thousands in legal fees later.
In YOUR situation, I would firmly explain in a nice professional way, that he did not hold up his obligations and that you would only pay him back the investment if he met his obligations. Since he did not, you owe him nothing. If that fails, you may want to ask him why he did not meet his obligations and explain that you do not have the investment.
If all that fails, see my first sentence and tell him that you want a year to find a new partner to buy him out. Even smarter, do not even put a date on it. When you find a new partner, you will find one, even if it takes over one year.
Bruce
A. What country are you in
B. did you verbally agree to pay him back
C. Is company generating income? Profitable?
Hi, I am an Israeli lawyer and therefore the following does not necessarily comply with the American legislation. In Israel, you don't need a signed contract in order to have an obligating agreement. Oral consent (in mist cases) is enough and when you have a proof in writhing (such as emails) it's even better.
What was the oral agreement between you two? Did you issue him shares? If you did and he is a partner he bears the risks as well as the advantages so it doesn't make sense to ask the money back. In addition, how did you write the money in the company's books? If it was not written as a loan you might have a better case claiming the money was never meant to be paid back.
As a practical advice, try to build a mechanism that will "free" you from him. Maybe pay in installments, decide you will pay back from revenues or as a percentage from a further investment etc. You are welcome to give me a call and we can think together of creative ideas to offer him from the business point of you rather than the legal one. Good luck!
Can't speak to the legal standing of the e-mail in regards to the initiation of a contract, but from my understanding it sounds like you would be in the clear. Dealing with a partner who "isn't carrying his weight" is always a difficult topic, particularly when you are talking about a 2-person partnership. Hard to make a clear judgment based on the information provided, but your partner should understand the risks involved with investing and co-founding a start-up. Unless the wording of your agreement was overtly biased towards your partner, I find it hard to believe your partner would be able to re-coup his initial investment.
I am a startup lawyer and mediator, and my advice in situations where there is not an agreement in place that adequately resolves a conflict is to recommend mediation. If "kitchen table" negotiations have failed to resolve the issue, before you spend tens of thousands of dollars on litigation, the best route is to attempt face-to-face mediation with a neutral facilitator. It is usually less expensive than litigation and generally stays more positive and has a more mutually agreeable outcome. Feel free to contact me if you want more background on what mediation entails.
Related Questions
-
What is a better title for a startup head....Founder or CEO? Are there any pros/cons to certain titles?
The previous answers given here are great, but I've copied a trick from legendary investor Monish Pabrai that I've used in previous startups that seems to work wonders -- especially if your company does direct B2B sales. Many Founders/ CEOs are hung up on having the Founder/ CEO/ President title. As others have mentioned, those titles have become somewhat devalued in today's world -- especially if you are in a sales meeting with a large organization. Many purchasing agents at large organizations are bombarded by Founders/ CEOs/ Presidents visiting them all day. This conveys the image that a) your company is relatively small (the CEO of GM never personally sells you a car) and b) you are probably the most knowledgeable person in the organization about your product, but once you land the account the client company will mostly be dealing with newly hired second level staff. Monish recommends that Founder/ CEOs hand out a business card that has the title "Head of Sales" or "VP of Sales". By working in the Head of Sales role, and by your ability to speak knowledgeably about the product, you will convey the message that a) every person in the organization is very knowledgeable about the ins and outs of the product (even the sales guys) and b) you will personally be available to answer the client's questions over the long run. I've used this effectively many times myself.VR
-
How can one file an EIN without an SSN/ITIN?
You should retain a lawyer, or another qualified individual, to act as the third party designee for the corporation (if you do not have a partner or co-owner who is a US citizen). The designee should prepare Form SS-4 (Application for Employer Identification Number) and Form 8821 (Tax Information Authorization) for the corporation’s president to sign and return.MM
-
How should I structure my real estate partnership?
I've been a commercial real estate broker for 5 years now and have ventured into a handful of business partnerships - some have worked and some have nearly ruined me. What I find, on a surface level, is that you must absolutely share the same VALUES and MISSION as your potential partner. Having even stake in the game also helps, as it avoids one partner eventually grabbing "the upper hand". If you are not bringing cash or equity to the table, be prepared to demonstrate how your hard work can be translated into $ value. If you have more detailed scenarios or questions, feel free to bounce them off me at anytime. Cheers! -S.SD
-
If I am planning to launch a mobile app, do I need to register as a company before the launch?
I developed and published mobile apps as an individual for several years, and only formed a corporation later as things grew and it made sense. As far as Apple's App Store and Google Play are concerned, you can register as an individual developer without having a corporation. I'd be happy to help further over a call if you have any additional questions. Best of luck with your mobile app!AM
-
What legal precautions can I take to make sure nobody steals my startup idea?
I've discussed ideas with hundreds of startups, I've been involved in about a dozen startups, my business is at $1M+ revenue. The bad news is, there is no good way to protect ideas. The good news is, in the vast majority of cases you don't really need to. If you're talking to people about your idea, you could ask them to sign an NDA ("Non Disclosure Agreement"), but NDAs are notoriously hard to enforce, and a lot of experienced startup people wouldn't sign them. For example, if you asked me to sign an NDA before we discussed your Idea, I'd tell you "thanks, but no thanks". This is probably the right place though to give the FriendDA an honorable mention: http://friendda.org/. Generally, I'd like to encourage you to share your Ideas freely. Even though telling people an idea is not completely without risk, generally the rewards from open discussions greatly outweigh the risks. Most startups fail because they build something nobody wants. Talking to people early, especially people who are the intended users/customers for your idea can be a great way to protect yourself from that risk, which is considerably higher than the risk of someone taking off with your idea. Another general note, is that while ideas matter, I would generally advise you to get into startup for which you can generate a lot of value beyond the idea. One indicator for a good match between a founder and a startup is the answer to the question: "why is that founder uniquely positioned to execute the idea well". The best way to protect yourself from competition is to build a product that other people would have a hard time building, even if they had 'the idea'. These are usually startups which contain lots of hard challenges on the way from the idea to the business, and if you can convincingly explain why you can probably solve those challenges while others would have a hard time, you're on the right path. If you have any further questions, I'd be happy to set up a call. Good luck.DK
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.