What do I owe my partner that just left the company?
I started an LLC. After a couple years of sputtering, I decided to get more serious about it, so I brought a partner on board. The idea was that this would always be a part time job that we did a couple nights a week, but it turned out to be much more than that.
We had a verbal agreement to get his equity stake to 25% after 4 years. It was to be 10% after year 1. This was before any money was put into the company.
As the company progressed, I put in another $25,000 - of my own money, we got another $19,000 from Kickstarter and the job started to become much more serious.
The number of hours that we worked over the following year were probably 3:1 or 4:1 in my favor. Then after about a year of him doing work, he decides that the commitment is too much and he is ready to leave.
The company is far from being profitable, yet, I still have a dream to turn things around and make it successful.
So my question is, what do I owe him?
He still thinks 10%, but I think less because I put money into the business and he didn't. But neither of us are experts on this matter.
If I continue to put more money in, it seems odd that he would own 10% right?
Your thoughts would be great. Thanks!
First, I strongly advice you to hire a lawyer. It is worth getting this right. It's hard to give definitive advice without carefully review the matter, including any written correspondence in the absence of a written contract.
From what you have written, I would definitely not put more money into this venture until you figure out the arrangement. Do you really want to continue this partnership? Would you prefer to do it yourself or find a new partner? If so, you need to decide if it is better to just start over...and if it's possible (is there any IP or contractual restrictions). The key is to look at the long-term goal and where you see the company going. If you can build something that is highly profitable, it may be better to take a hit now rather than down the road where there is much more at stake.
Going forward it is critical to get these arrangements in writing and have legal counsel. You want to make sure that any arrangement factors into varying workloads, monetary contributions and changes in circumstances as much as possible. You might want to read Founder's Dilemma by Noam Wasserman, which does a great job talking through founder equity splits.
Sorry I cannot give you a definitive answer, but hope this helps. Best of luck!