When a co-founder leaves a business, it isn’t always easy. It can cause some issues internally and can make responsibilities a lot heavier for existing founders and employees. 

However, it’s important to remember to protect your business as much as you can during this complicated time. 

So, what happens from here?

First Thing’s First – Review Your Contracts!

The first thing you’ll want to do is review all your contracts. These would have certain exit clauses and other key terms that would cover this exact situation. For example, they might set out details around business ownership and rights (it’s a good idea to get a lawyer to review these for you to ensure you go about the process correctly). 

Other important matters you should be thinking about include:

  • What will happen to your IP
  • Will they still have some ownership of the company?
  • Are there any non-compete clauses in your agreements?

What About My Investors?

If you’re a startup, you want to be as transparent as possible with your investors. After all, you want to maintain that relationship of trust with them.

If a co-founder is leaving, make sure you communicate this with your investors so they can make informed decisions moving forward. This can also provide some guidance for your next steps around your internal business activities.

Do I Need To Terminate Them?

If your co-founder is a board member, terminating them might turn out to be a little more complicated than expected. For example, the co-founder might have some additional demands around ownership or other key matters in your agreements.

If they were issued shares by the company, chances are you cannot take this back – that is their equity now. Matters like these might cause some issues between founders, so it’s worth chatting  to a lawyer who can ensure the process goes smoothly. 

During the exit stage, the last thing you want is dealing with any legal disputes that could be avoided through good communication and legal assistance. 

What Else Should I Think About?

Now that we’ve covered the legal aspects, what about everything else?

At this stage, your employees might be worried about next steps or the future of the business. It’s important to have a plan for communicating with them, too. Make sure you have a plan for who will take over certain tasks and any new roles that may result from your co-founder’s departure. 

Who Can Help Me Through The Process?

Getting a lawyer to help with your co-founder’s departure is your best option. Sprintlaw offers a Co-Founder Separation package which includes a phone consultation with one of our lawyers who will advise you on the legal issues that apply to you. 

If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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