By UpCounsel Corporate Attorney Angelique Thomas

You and your startup’s co-founder spent months, if not years, building a company. You sacrificed everything to ensure the vision for the company came to life – sleepless nights, foregoing a social life, and time not spent with family. You told yourself these sacrifices would all be worth it and at least you and your co-founder were in it together. Together forever.

Now imagine the implications for your startup (and your sanity) if your co-founder decides to quit. Do you know how to handle a co-founder’s sudden exit? Specifically, what decisions and steps should you take to safeguard the value of the business?

Maintaining focus in the aftermath of a co-founder’s departure may not be easy, but it is essential. Here are five immediate courses of action you should take if your co-founder quits unexpectedly:

1. Have a Plan

Ideally, you’ll have a contingency plan in place to address the scenario of a co-founder leaving the company due to illness, death or to pursue a better offer. A co-founder’s sudden exit can have a significant effect on the morale of your company’s employees and the company’s ability to maintain its financing and its relationship with parties who are important to the company’s success. The company’s contingency plan should discuss how the company will move forward in the wake of a co-founder’s exit, including how it will communicate a co-founder’s departure to the rest of your team, investors and other key stakeholders and divvy up the departing co-founder’s responsibilities.

2. Seek Legal Advice

What governing documents and agreements does your company have that are pertinent to the departing co-founder? A founder’s agreement should address valuation of shares, buyouts, and management and control rights. Equally importantly, you’ll want to take proactive steps to protect your company’s intellectual property. A technology assignment agreement will ensure that any intellectual property developed by a co-founder becomes an asset of the company. Consult a lawyer who can review your company governing documents and agreements, and make sure you’ve covered all legal issues following your co-founder’s departure.

3. Negotiate

Equity ownership and transfer, valuation and intellectual property are some of the major areas you and your departing co-founder need to agree on. The last thing you want is someone without a vested interest in the startup’s success leaving with a good part of the equity and a say in the business. If your founder’s agreement doesn’t have a vesting schedule, if your co-founder is already fully vested, or if you don’t have an agreement, the company should come up with the funds to buy your co-founder out. An attorney can help you figure out the best way to recover the shares from the departing co-founder. Similarly, if your co-founder started working on the product before you formed the company, but didn’t sign a technology assignment agreement, any intellectual property assets that your co-founder created may be his or hers to keep. Is your co-founder willing to give up these assets and at what price? These are all issues for which you should seek the advice of an attorney.

4. Revisit Your Business Plan

A co-founder’s departure, whether planned or unexpected, will likely have a financial and strategic impact on the business. You should revisit your business plan to determine whether and how the business will continue without your co-founder.

5. Move Forward

The continued success of the business depends on your resilience and ability to bounce back from a co-founder’s exit. Furthermore, if your co-founder quit to start a competing business, there’s not much you can do except move quickly to get yourself to market.

The Takeaway

A co-founder’s unexpected exit can have a significant impact on your startup company and its trajectory, but it doesn’t mean a death sentence for the business. Ideally, you’ll want to have a contingency plan and key legal documents in place to address this scenario. Part of that plan should include seeking out counsel and guidance from a skilled business attorney.

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About the author

Angelique Thomas

Angelique Thomas

Angelique is focused on providing innovative legal and business solutions for entrepreneurs, small businesses and startups. She practices in the areas of business, commercial real estate and intellectual property law.

She is an experienced business attorney and works directly with entrepreneurs to form and launch their companies, and protect their business interests. Prior to starting her own practice, Angelique was an associate attorney at national and regional law firms in Florida, where she assisted clients with business and real estate matters throughout the country.

Angelique is licensed to practice law in New York, the District of Columbia, Georgia and Florida.

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