Startup shares split between 2 partners
- January 9, 2019 at 1:05 pm #3921
A startup software company XYZ was formed by two partners A & B after developing an enterprise software product P1 for 3 years. Partner A was responsible for ideation, functional design, development, sales and finances. Partner B was responsible for architecting a strong reusable technology platform on top which product P1 was developed and lead the product development.
The partners split the shares as A – 60% ; B – 40%. This was also due to partner A contributing 30% more effort/time than partner B in the initial 3 year period and for joint equal future work.
Partner A showcased their product P1 to a client C1 which liked the product and the technology of the company, however they could not close the deal. Partner A identified another opportunity with the same client and started to work on a new product P2. The ideation and prototype of P2 was completed by Partner A with some support from Partner B and won the first contract from client C1 to develop this product further for them.
The product P2 was developed on top of the reusable product platform of P1 which reduced development efforts.
Partner A focused on business analysis, design and development of the initial version of P2 on top of client relation and finances. After the funds started flowing from client A, Partner B was tasked with setting up a office and hire more developers and majority of development work on product P2 was completed by partner B with some help from other employees.
After completing the project, Partner B is expecting the revenue from product P2 to be split as 50-50 as both both partners spent equal time on the project. This caused a disagreement between the partners.
Partner A views product P2 was awarded to company C1 for which the shares are already split 60-40 and should remain same for product P2. Also the new product was developed on the existing reusable rapid development technology platform of company C1 and based on the company C1’s merit. Also Partner A conceived and secured this new product P2 development deal from Client C1.
Partner B views the 60-40 percentage split is only applicable to product P1 and the new product P2 revenues should be split 50-50 as both worked equally on this.
Please advise how this should be settled and the reasons for the change if any.
Thank you for your help.January 9, 2019 at 2:44 pm #3922
If there is nothing in writing between the parties to the contrary (shareholders agreement, director’s service agreement, even any email exchange) then it would appear that the 60/40 shareholding will continue to apply in respect of the company, irrespective of what products are produced. However, how the company remunerates each working shareholder is always a matter for negotiation (split between salary and dividends) and if the parties can’t reach agreement between themselves then they should seek a mediator to help them reach a settlement. See here for further information: https://www.jonathanlea.net/2018/using-mediation-to-resolve-shareholder-disputes/March 15, 2019 at 7:55 am #4146
good post.. thanksApril 17, 2019 at 3:42 am #5175
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