Founder Dispute Lawyer

Founder disputes involve complex, often high-stakes legal challenges that arise between co-founders of a company, between founders and investors, or between founders and their board of directors. These disagreements commonly relate to ownership, strategy, equity splits, decision-making authority, intellectual property, or the division of profits or assets. These disputes can arise at various stages of a startup’s life, for example formation, during periods of growth, or after the company has achieved some level of success.

At Delahunty & Edelman LLP, we have substantial experience helping our clients face these challenges. Our approach considers both the legal complexities and the business dynamics involved. We help our clients optimize both.

This approach has been honed over decades of experience navigating the intersection of business law, corporate governance, and intellectual property.  We will work to help you achieve an efficient resolution to avoid irreparable harm to the startup itself. We are also prepared to litigate to judgment if needed to ensure you and your company are protected.

What Our Clients Say:
There are few things companies and their boards dread more than litigation, but when faced with it, you want an advocate who will proactively protect your rights and help you achieve a positive outcome. When we met Delahunty & Edelman LLP, we knew immediately we were with the right firm. Despite the complexities and intricacies of the matter, they guided us, broke it down into clear options and set us up for success. There is no question that Patrick and Will have the training, temperament, and mind-set to navigate their clients to a great result.

-Technology Company Founder

Founders Disputes Can Present Challenges for a Business on Many Fronts

Co-founder disputes can be extremely difficult for all parties involved. From the founder’s perspective, they are dealing with the business that they have built, and they may feel that their life’s work is on the line. From the standpoint of other stakeholders, they may view the partner’s conduct as compromising the viability of the business and their own financial interests.

Reasons for Founder Disputes

The reasons for a founder dispute often depend on who you ask. One or more of the founders may still want to take on a hands-on role with the company even as the business has grown. Other stakeholders may now have their own roles, and they may view a founder’s actions as either self-serving or obstruction. Reasons for founder disputes include:

• Co-Founders: Co-founders may disagree with each other as to the direction of the business and how it is to be operated or feel that one of them has failed the company in some respect.
• Founders/Investors: The founder may feel that the investors are unreasonably trying to interfere with the operation of the business, while the investors may believe that the founders are not adequately protecting their investment.
• Founders/Board of Directors: The founders may claim that the board of directors is not allowing them to do their jobs, while the board may not believe that the founders are upholding their own duties to the company.

As a business grows, there are many ways that founders can be in a disagreement with each other or those who have stakes in the company. Examples of founder disputes are:

• Differences of opinion about the direction of the company
• Allegations of financial mismanagement
• Divisions of profit and equity
• Management of the company’s intellectual property
• The exit strategy when the sale of the business is at issue
• Personality conflicts
• Differences in work ethics

How to Resolve a Founder Dispute

Although it is the ideal course of action, it may be challenging to take a step back and allow cooler heads to prevail. After all, emotions may run high when there is a closely held business, and a founder’s role and rights may be involved. Even so, it is often better to talk and try to resolve a dispute through negotiation and possibly mediation. On the other hand, if someone involved is taking actions that can place the company at risk, you may need to take immediate action to protect both the business and your interests.  This might include seeking injunctive relief to stop destructive actions being taken against the company, asking a court to enforce an existing agreement, or litigation to recover damages.

Legal Principles Underlying a Founder Dispute

Founders owe a fiduciary duty to the company if they serve as a director or officer of the business. If they are a controlling shareholder, they also owe fiduciary duties to the minority shareholders. Board members also owe these duties to the shareholders.

Fiduciary duties include the following:

• Duty of care: One must exercise reasonable care and due diligence in carrying out their role and making decisions that affect the company. Essentially, this duty is akin to avoiding negligence (although a board member may be protected by the business judgment rule)
• Duty of loyalty: One must place the interests of the company ahead of their own and avoid conflicts of interest (or ensure that they are disclosed so others who are disinterested can decide whether to approve a transaction)

Many companies have advancements language in their founding documents which could require the company to advance fees incurred in company related litigation.  This could apply even if the board member or officer is the defendant in the action. This is an important consideration as it could have a significant impact on the cost to the company to pursue litigation of this type.  Founders and board members may also have directors’ and officers’ liability (“D&O”) insurance that may be used to pay for settlements and verdicts, and the insurance company may be involved in the dispute.  If a founder or a board member has been found to have violated their fiduciary duties, they could be responsible to repay the company for fees that were advanced and may be personally liable to pay damages to the company.