Ask HN: Broke up with cofounder. Can I use remaining money to pay our devs?
42 comments
This is not advice but as someone who does a lot of contract work, it is repugnant to me that a "client" even consider the option of simply not paying for services rendered. By your own account, those services were rendered in satisfactory manner. The fact you are considering lurching on payment puts you in a worse light than all the faults of your co-founder in my view.
Honor your commitments.
Honor your commitments.
This. Just because you two fuckwits can't sort out your marriage, doesn't mean you can forget to feed the kids.
Give what belongs to them, then you two are free to fight over what's left.
Give what belongs to them, then you two are free to fight over what's left.
Do right by the contractors.
Nothing you do will somehow make him behave well. Pissing off a whole lot of other people by screwing them financially out of fear of his reprisal means now you have more enemies and a black mark against your character on top of a nutcase hounding you who will do insane, abusive garbage for irrational reasons.
Any protection you have from him lies in not screwing others in the name of covering your ass here.
He's going to keep trying to hurt you no matter what you do. Others will protect you or not to some degree largely based on your behavior.
Nothing you do will somehow make him behave well. Pissing off a whole lot of other people by screwing them financially out of fear of his reprisal means now you have more enemies and a black mark against your character on top of a nutcase hounding you who will do insane, abusive garbage for irrational reasons.
Any protection you have from him lies in not screwing others in the name of covering your ass here.
He's going to keep trying to hurt you no matter what you do. Others will protect you or not to some degree largely based on your behavior.
+1 Do right by the contractors by paying them properly and timely. Talk to angel investor about dissolving the company, get legal consultation and returning remaining funds and IP to the investor. Take a break for a while. Setup new startup, approach previous angel investor and contractors again, and take another swing. The lesson learnt should be not to take just anyone "officially" as cofounder unless there is some sort of validation by others. Next time, have your investor and contractors interview such a person, ask common connections, bring that person onboard as contractor first.
IANAL but I think it depends on the break up. If you resigned from the company then that means you don't have any legal control of the funds. If you are still a valid officer of the company than paying debts you owe shouldn't be an issue.
Not paying the offshore devs could also theoretically lead to a lawsuit. A lawsuit for not being paid is an easier lawsuit to win than suing a business partner for paying valid expenses the company had accrued.
But you should definitely talk to a lawyer.
Not paying the offshore devs could also theoretically lead to a lawsuit. A lawsuit for not being paid is an easier lawsuit to win than suing a business partner for paying valid expenses the company had accrued.
But you should definitely talk to a lawyer.
> If you are still a valid officer of the company than paying debts you owe shouldn't be an issue.
Assuming the company is solvent. If the company is bankrupt then preferential payments to creditors can be an issue.
Assuming the company is solvent. If the company is bankrupt then preferential payments to creditors can be an issue.
If you are actively going through bankruptcy there are usually restrictions on payment.
You can get in trouble if your company has a lot of debts and you "pay" your uncle a million dollars for a bs job or you gives yourself a bonus.
But paying devs that built something for you in the ordinary course of business is not really going to get you in trouble in any but the most extreme circumstances.
You can get in trouble if your company has a lot of debts and you "pay" your uncle a million dollars for a bs job or you gives yourself a bonus.
But paying devs that built something for you in the ordinary course of business is not really going to get you in trouble in any but the most extreme circumstances.
> we broke up 2 months ago
Let's talk how that actually works in a business sense. Did you leave the company? Relinquish all control? Did you boot the cofounder out or did you buy out their portion?
What type of arrangement is this? Partnership? LLC? How did you register the entity?
"Broke up" doesn't really say anything.
Assuming you were in a partnership and you both have authority to make decisions on behalf of the company then you are free to just pay the contractors. So is your cofounder. Unless your governance documents indicate otherwise this is 100% valid.
Let's talk how that actually works in a business sense. Did you leave the company? Relinquish all control? Did you boot the cofounder out or did you buy out their portion?
What type of arrangement is this? Partnership? LLC? How did you register the entity?
"Broke up" doesn't really say anything.
Assuming you were in a partnership and you both have authority to make decisions on behalf of the company then you are free to just pay the contractors. So is your cofounder. Unless your governance documents indicate otherwise this is 100% valid.
Disregard any advice you receive here that doesn't tell you to get a lawyer.
Get a lawyer.
Get a lawyer.
No a lawyer is not needed.
There is no question that legitimately incurred business costs should be paid from available money, regardless of whether the cofounders are having a fight or not.
No legal question here….
The business is not bankrupt, so pay the bills.
There is no question that legitimately incurred business costs should be paid from available money, regardless of whether the cofounders are having a fight or not.
No legal question here….
The business is not bankrupt, so pay the bills.
The OP may or may not have executive authority to disperse funds.
Without the details of the business’s legal organization there is no way to know.
Hopefully there are legal documents establishing the company. But I would not bet $28000 on it.
And based on the circumstances described, I would advise having a legal opinion even for an apparent slam dunk because this one smells like it is heading to lawyers.
Without the details of the business’s legal organization there is no way to know.
Hopefully there are legal documents establishing the company. But I would not bet $28000 on it.
And based on the circumstances described, I would advise having a legal opinion even for an apparent slam dunk because this one smells like it is heading to lawyers.
What can be said is:
if this person has been responsible for bill paying to this point and has historically had such responsibility
and if the business is not indebted beyond the money that they have remaining
then the invoices should be paid
a lawyer is not needed for the above situation - this is normal day to day business and such business should not be halted because the founders had an argument
No matter how you cut the cake, this person should not be in business until they've done some business education.
if this person has been responsible for bill paying to this point and has historically had such responsibility
and if the business is not indebted beyond the money that they have remaining
then the invoices should be paid
a lawyer is not needed for the above situation - this is normal day to day business and such business should not be halted because the founders had an argument
No matter how you cut the cake, this person should not be in business until they've done some business education.
Whether or not they should be in business, they are in business and they are dealing with a minor mess.
Only a minor mess because:
1. There is money.
2. They aren’t being sued yet.
Getting lawyers involved before getting sued is the way to go, and it’s even better when there’s money to pay them.
Only a minor mess because:
1. There is money.
2. They aren’t being sued yet.
Getting lawyers involved before getting sued is the way to go, and it’s even better when there’s money to pay them.
No-one is being sued, so it is business as usual.
Pay your bills - that's how you run a business.
Pay your bills - that's how you run a business.
A founder breakup is not business as usual.
Seems like the order should be employees/contractors, then bills, then owners.
You have no idea whether the business is bankrupt. It’s very possible that the business is not generally paying their bills as they come due. You also have no idea whether the business will file for bankruptcy protection in the next few years, in which case transfers they make today might be fraudulent or preferential. You also don’t know whether any of these transfers were made to “insiders,” which could drastically change the timeline in the previous sentence.
I get it, your intuition is that businesses should generally pay their bills. I feel that way too. There are circumstances where that could be a really bad idea.
I get it, your intuition is that businesses should generally pay their bills. I feel that way too. There are circumstances where that could be a really bad idea.
How is the answer to this not obvious?
You bought services from people.
You have the money to pay them.
It’s a genuine question… who is it that looks at this situation and is unclear about whether to pay the people whose services you have already consumed?
If their invoices are due go pay them NOW.
Imagine you built some software for someone and when it comes time to pay they say “hey I’d really love to but I’m in a legal situation with my cofounder”.
That’s completely unacceptable. Pay your people.
And honestly if you don’t know the right answer to this question then you shouldn’t be in business.
You bought services from people.
You have the money to pay them.
It’s a genuine question… who is it that looks at this situation and is unclear about whether to pay the people whose services you have already consumed?
If their invoices are due go pay them NOW.
Imagine you built some software for someone and when it comes time to pay they say “hey I’d really love to but I’m in a legal situation with my cofounder”.
That’s completely unacceptable. Pay your people.
And honestly if you don’t know the right answer to this question then you shouldn’t be in business.
I think you're preaching to a chorister - OP clearly knows that's right and wants to make it happen, they're just concerned about their potential liability if the ex-co-founder tries to make life difficult for them in that way too, after already doing other similar things.
It's not totally spelled out, but doesn't sound like they have limited liability company or partnership or whatever (not my jurisdiction) set up, so even if completely unfounded the other party could perhaps try to sue OP personally.
Even though it's clearly morally correct to pay them, I can completely understand trying to ensure one's own livelihood etc. not harmed unduly in the process.
It's not totally spelled out, but doesn't sound like they have limited liability company or partnership or whatever (not my jurisdiction) set up, so even if completely unfounded the other party could perhaps try to sue OP personally.
Even though it's clearly morally correct to pay them, I can completely understand trying to ensure one's own livelihood etc. not harmed unduly in the process.
> completely understand trying to ensure one's own livelihood etc. not harmed unduly
So can I. And I'd still pay them: my problems are not their problems. They did the work, they should be paid. The possibility that I may be screwed over if I do that doesn't absolve me from the responsibility of holding up my end of the bargain.
I can't believe that this is even a question.
So can I. And I'd still pay them: my problems are not their problems. They did the work, they should be paid. The possibility that I may be screwed over if I do that doesn't absolve me from the responsibility of holding up my end of the bargain.
I can't believe that this is even a question.
If you can understand that concern, then why can't you believe it's a question? I'm not saying I wouldn't pay them, it's not clear OP won't either - really the post to me reads like seeking reassurance it's going to be ok because that is what they want to do.
I don't think it's an unreasonable question, and I don't think all the 'consult a lawyer first' (with the intention of doing it 'properly'/in a way that doesn't have potential liability/fallout) are unreasonable answers.
I don't think it's an unreasonable question, and I don't think all the 'consult a lawyer first' (with the intention of doing it 'properly'/in a way that doesn't have potential liability/fallout) are unreasonable answers.
the contractor debts have preference over common equity. no need for lawyer here as the company is valueless after debts paid- assuming investments on SAFE the company (assets and cash) is worth less than the valuation cap and investor preference has kicked in so they will more or less get any remaining money back and common shareholders (you and departed founder) are zeroed out. Assuming software co, open source everything wind down the corp file tax return get tax clearance and start over with the OSS IP and get your agreements in place this time. You can pay $500 on upcounsel for a lawyer to tell you this if you like.
Here's the language, note (iii) is what zeroes you out and (i) is what gets contractors paid
(d) Liquidation Priority. In a Liquidity Event or Dissolution Event, this Safe is intended to operate like standard non-participating Preferred Stock. The Investor’s right to receive its Cash-Out Amount is:
(i) Junior to payment of outstanding indebtedness and creditor claims, including contractual claims for payment and convertible promissory notes (to the extent such convertible promissory notes are not actually or notionally converted into Capital Stock);
(ii) On par with payments for other Safes and/or Preferred Stock, and if the applicable Proceeds are insufficient to permit full payments to the Investor and such other Safes and/or Preferred Stock, the applicable Proceeds will be distributed pro rata to the Investor and such other Safes and/or Preferred Stock in proportion to the full payments that would otherwise be due; and
(iii) Senior to payments for Common Stock.
The Investor’s right to receive its Conversion Amount is (A) on par with payments for Common Stock and other Safes and/or Preferred Stock who are also receiving Conversion Amounts or Proceeds on a similar as-converted to Common Stock basis, and (B) junior to payments described in clauses (i) and (ii) above (in the latter case, to the extent such payments are Cash-Out Amounts or similar liquidation preferences).
(d) Liquidation Priority. In a Liquidity Event or Dissolution Event, this Safe is intended to operate like standard non-participating Preferred Stock. The Investor’s right to receive its Cash-Out Amount is:
(i) Junior to payment of outstanding indebtedness and creditor claims, including contractual claims for payment and convertible promissory notes (to the extent such convertible promissory notes are not actually or notionally converted into Capital Stock);
(ii) On par with payments for other Safes and/or Preferred Stock, and if the applicable Proceeds are insufficient to permit full payments to the Investor and such other Safes and/or Preferred Stock, the applicable Proceeds will be distributed pro rata to the Investor and such other Safes and/or Preferred Stock in proportion to the full payments that would otherwise be due; and
(iii) Senior to payments for Common Stock.
The Investor’s right to receive its Conversion Amount is (A) on par with payments for Common Stock and other Safes and/or Preferred Stock who are also receiving Conversion Amounts or Proceeds on a similar as-converted to Common Stock basis, and (B) junior to payments described in clauses (i) and (ii) above (in the latter case, to the extent such payments are Cash-Out Amounts or similar liquidation preferences).
there's legal accountability and there's moral choice. would you screw over contractors and investors to protect yourself from your decisions?
the contractors aren't the only stakeholders at risk in this choice. how do your investors feel about this situation? what's their moral compass?
the contractors aren't the only stakeholders at risk in this choice. how do your investors feel about this situation? what's their moral compass?
Assuming the company is in California, the laws are very pro-worker. Find a lawyer to give you advice but I suspect it's completely kosher to pay your employees before anyone else's claims on the cash. It's also the right thing to do.
OP said they were offshore contractors, hence not CA and not employees either.
Have some decency and pay the money you owe. They worked for it! It's not their fault.
Before talking to your lawyer, talk to your investors.
Do you have signing authority? And for how much?
Who signed for the accounts etc?
Ignore the people here. The overseas contractors aren't going to sue you. Your ex partner won't either.
Do you have signing authority? And for how much?
Who signed for the accounts etc?
Ignore the people here. The overseas contractors aren't going to sue you. Your ex partner won't either.
Pay people for the work they were contracted to do.
Pay them.
Go find a lawyer and give them your money.
They have spent all of human history creating a cartel for solving problems. Never let the cartel know you tried to solve a problem without paying their toll, otherwise things will be made worse.
They have spent all of human history creating a cartel for solving problems. Never let the cartel know you tried to solve a problem without paying their toll, otherwise things will be made worse.
You're definitely going to want to talk to a lawyer. This could get muddy, heck it already is muddy. I'd want representation before I did anything in your situation.
Ethically, IMHO, if you owe monies to third parties for undisputed work done, you should pay that.
But as said in another response, hire a (not-too-fancy) lawyer or a company liqudator to constrain how messy this may get.
But as said in another response, hire a (not-too-fancy) lawyer or a company liqudator to constrain how messy this may get.
Get a lawyer. And delete this. You've already admitted too much in a public area.
Yeah, this.
Also:
> I politely decided to stop working with him after finding out and hearing horror stories from mutual connections and his previous employers (lawsuits, threats, etc).
IMO this is not a valid reason to stop working with someone after the relationship began. But I suppose I don't know the whole story.
Also:
> I politely decided to stop working with him after finding out and hearing horror stories from mutual connections and his previous employers (lawsuits, threats, etc).
IMO this is not a valid reason to stop working with someone after the relationship began. But I suppose I don't know the whole story.
Even if they had a valid reason, it shows a serious lack of judgement (arguably to the point of malice) terminating the business relationship before discussing or even thinking over the matter of paying for services already rendered.
The person terminated the business relationship based on anecdotal reports, and then is surprised when he catches wind of unfavorable rumors being spread about him? It's ironic that in the process of breaking up with the cofounder, this person essentially created the situation he was breaking up for.
The person terminated the business relationship based on anecdotal reports, and then is surprised when he catches wind of unfavorable rumors being spread about him? It's ironic that in the process of breaking up with the cofounder, this person essentially created the situation he was breaking up for.
Which is why this should all be deleted; there's a chance he just admitted to the interference tortoise or something.
> there's a chance he just admitted to the interference tortoise or something.
Tortious interference?
Tortious interference?
[deleted]
The interference tortoise, ha, thanks for this!
>he just admitted to the interference tortoise or something.
Something like spilling his guts to the hookah-smoking caterpillar . . .
Something like spilling his guts to the hookah-smoking caterpillar . . .
Most company types will have concrete details for defining ownership proportions (controlling interest) and/or assigned roles with broad but clear allocations of responsibility and authority. Hopefully you have similar contracts defining the rules of engagement with your angel investors.
If you're worried about litigation and liability, fall back on what the concrete legal docs say you can do.
If not done yet, step one should probably be updating the company docs to reflect the reality of the founder separation. This of course requires negotiation of an agreement with your cofounder unless you set things up where you have controlling interest already or want to outsource it to a lawyer.
If you clarify the region, company type, and whether the separation was formalized, then folks might be able to provide more specific advice.
If you're worried about litigation and liability, fall back on what the concrete legal docs say you can do.
If not done yet, step one should probably be updating the company docs to reflect the reality of the founder separation. This of course requires negotiation of an agreement with your cofounder unless you set things up where you have controlling interest already or want to outsource it to a lawyer.
If you clarify the region, company type, and whether the separation was formalized, then folks might be able to provide more specific advice.
Under normal circumstances, this would be a no-brainer. But there are some details that can make it trickier. My ex-co-founder has mental health issues I wasn't aware of when we started working together (we met at a founders meetup in SF and he seemed pretty normal by then). I politely decided to stop working with him after finding out and hearing horror stories from mutual connections and his previous employers (lawsuits, threats, etc). After I broke up with him, he became a completely different person: he tried to contact the university I graduated from to get my title revoked, tried to get me fired from my job and tried to forcefully make me sign a contract waiving all my shares, ip and rights to the stuff we both worked on (I didn't sign it). I'm not mentioning this to complain but to paint a picture of a deeply troubled person who will do anything to cause as much damage as possible if things do not go their way.
I want to pay our contractors what we owe them, but I am slightly concerned I'll get sued or in any other kind of trouble if I use the remaining funds to do so. My main question is: should I pay them? What is the worst he can do if he disagrees? Can he sue me? Report theft? We don't have any cofounder agreements signed, the only thing we have is the company and the bank account (we were working on the paperwork but never got to sign it). And we don't have signed agreements with our contractors. But, we have a working demo and all the code they delivered.
Thank you!