The founders use limited actions to ensure that each of the other founders continues to contribute to the company. Imagine, for example, that a company`s shares are divided among five founders. Six months after the venture, one of the founders decides that he is tired of living on a top ramen budget. He decided to find a paid job and left the company and the other founders. Three years later, the company did a few rounds of financing VC, and the other four founders built its value up to tens of millions. The founder, who was saved in the early stages, is now a millionaire of risk-taking and the efforts of the other four founders he saved. Instead of authorizing this result, the founders will limit each other`s shares and submit to a vesting schedule, so that the un acquired shares of an outgoing founder can be repurchased by the company. “restricted portfolio,” common shares that are subject to standard transfer restrictions for shares of private companies and which repurchase or expire on the basis of a clearing plan. Vesting is usually over a four-year period (with an optional one-year stumbling block, i.e. the first vesting takes place after 12 months) and is conditional on the shareholder maintaining his relationship with the company as an employee or officer. In these cases, the contract may provide that the company can repurchase the free movement shares after a “trigger” event, for example. B if you leave the company or if you are terminated for or without reason. If you are still in the business at the time of the sale, you will receive the full value of your shares.
But the departure or termination can cause a relapse, where the company forces you to resell your reissued shares. “Because the real value of owning start-up shares comes with an exit event such as an IPO or a buyout,” Russell explains, “this early takeover prevents the shareholder from recognizing that growth or pop in value.” Of course, when these situations come into play, there are a lot of opportunities for an argument. It is difficult to say anything good about disputes and their resolution. Disputes between founders are almost always full of emotions. It makes them very tenacious. Many people have tried to find inexpensive and simple ways to resolve disputes. These ideas sometimes make them shareholder agreements. The typical approach is a form of non-binding mediation over a period of time, followed by a binding arbitration procedure.
Many clients believe that this process will be less costly and less time-consuming than a court process. You may be right, but it is really hard to know. There is also the belief, which may not be correct, that arbitrators tend to compromise on courts that decide only who is right and who is wrong, thereby reducing the risk to all parties. This too may or may not be true. I do not know of any objective evidence in any way. Just to give you a rude feeling, our company dealt with disputes between founders, one of whom was one of my clients, who traveled all the way through a bank trial (he was tried before a judge and not before a jury).