Co-founder never did any work, verbally agreed to vesting. Not listed in any company documents

I was in a somewhat similar situation. I recall that one day he referenced being entitled to 50% because he had the title of co-founder – lol!

In my case, paperwork ended the situation because it freaked him out. While he acknowledged not putting money up and not wanting to stay long. He wanted the full amount of equity with no vestment, and it referenced how he could be removed for incompetency. At the time I was hurt because I personally gave him every single reason to trust me that I could think of so he would just go and knock it out the park, prove his weight. If he had done his job, I would have offered him 50% because he would have had a matching contribution to the company. After months of back and forth, he finally agreed to vesting, but never signed the papers.

In hindsight, it’s pretty funny as his first reaction to the paperwork proved he was too immature for founding a company. He didn’t understand business.

In the end, I got lucky because he was so focused on equity and not doing what I or the customer asked that he failed to do his job. He later abandoned when I asked him to sign paperwork for the fifth time. I had never put so much trust into someone else before, or invested that much faith, time, and money so it was disheartening to me to watch all that time and faith go to waste.

But, my business is so much more important to me than trying to cure someone’s emotional baggage around an irrational fear of being fired or losing equity.

At the time, I thought it was the end of the world and it truly wasn’t. It’s not for you either. It was the hardest, biggest business and life lesson I’ve learned and I’m grateful for it.

Have a talk with him and force the conversation about you and him to sign the docs with his job description and performance based milestones. If he doesn’t sign it’s because he either:

1) doesn’t want to be a part of the company

2) knows he personally doesn’t add value (only fearful)

3) isn’t mature enough to handle what will come with the money (fearful and feels entitled without wanting milestones)

If he signs and doesn’t meet his performance, he fires himself and returns the equity back to you. If he doesn’t sign, but delivers the work, then you have a mess on your hands. BUT, if he doesn’t sign and doesn’t deliver work, the most you’re potentially liable for is minimum wage for the hours worked (depends on state).

Clearly, not a lawyer, just a perspective from the outside looking in.

Now, for a harsh bit of friendly advice….

Be honest with yourself, has he truly not done any work? If he’s not around for a year, if you haven’t talked to him in a year, are you really running a business together? Plus, who the heck runs around talking about equity splits to people not involved in the business? Get the paperwork signed (or not signed) and focus back on the business.

Good luck and it isn’t the end for you although it feels like it’s everything going to sh*t, it’s not. You’ll get through it. If you end up cutting a check in the future, it’s because he was able to prove his hours within the statute of limitations. (Depends on state)

This is why people need to have the legal side of their business in place instead of acting like they can just ignore it til all hell breaks loose… Try using some of the legal tech out there. I know Shake Law creates contracts for free and Traklight has a free cloud storage system that verifies documents (point being you can use it back up claims within court).