Can co-founders of a seed-funded startup take away equity of another co-founder without buyback?

Rajat Dangi 🛠️
3 replies
In this scenario, a co-founder is quitting the company after giving 4 years of his life to the startup. Is it possible for the other co-founders to make his equity worthless and take it away without a buyback? What should be the ideal solution here?


Paul Korver
This is a question for a corporate attorney. Depends on how your startup was structured. Is there a corporate Stock Plan? Was there a Stock Purchase Agreement (SPA)? Was there a vesting schedule in the SPA? Does it define leaving "with cause"/"without cause"? Is there a Stock Power exhibit to the SPA? Were these docs all signed? Provided nothing illegal / unethical was done the ideal solution is that the co-founder should be able to leave, and his/her stock be repurchased by the startup based based on a 409a valuation provided at time of departure.
Rajat Dangi 🛠️
@paulkorver Shares were vested on a monthly basis. In case of departure, the unvested shares would be a buyback. In this particular case, there's a good amount of vested shares. So, is it possible for other Co-founders to make the vested equity worthless, take it away, without compensating for it?
Segun Oladele
I'm not sure how to make a suggestion when I do not know under which condition the co-founder leaves the company.