Odd story. The point at which you're selling your stake for $100, you've basically decided to give it away. Which raises the question: if he was just going to get $100 and nothing more, why not just hang on to it?
The lawsuit accuses the CEO of being a shady person in general. I think it’s plausible that the co-founder was surrendering equity he thought worthless (to move on from working with the shady person) and perhaps the CEO was advised by someone that a transaction without consideration can be challenging to defend (since he allegedly knew he was lying to the co-founder) so he convinced the co-founder that “for tax purposes, if I pay you $100 for the equity, it’ll be better for you as you can write the loss off” or something along those lines, something that wouldn’t stand up to scrutiny now but is enough to bamboozle someone into agreeing at the time.
Edit: no theory needed. The lawsuit goes on to say the $100 is the price the co-founder originally paid for the shares when the company was formed.
The CEO might have been shady as all heck but the lawsuit really feels like it's all over the place in terms of claims. It starts by going on about how important the co-founder was to the company and to teaching the CEO almost everything about AI and like the co-founder was the brains behind the technical achievements, but then pivots into talking about how the CEO was responsible for all the code and the actual implementation and the co-founder was just a public face and deals maker who had no involvement in the actual development, and then pivots back to complaints about the CEO fraudulently claiming credit for "being instrumental" or "leading" the efforts to build the stuff.
The complaint simultaneously tries to paint the co-founder as absolutely vital to the success and creation of everything the company did, while at the same time only taking 15% of the company (the CEO started with 70%) and completely unaware of anything regarding the company's assets, income, or valuation, despite apparently negotiating multiple hundred thousand dollar funding campaigns and contributing $15k of his own money. Is it common when you're in the "getting grants from NGO's, before even seed VC funding" part of starting a company for one of three founders to be negotiating these $100k+ funding deals without any access to the company finances?
Didn't follow any public statement of the CEO, didn't have an insight or access to the books despite apparently multiple times running into funders complaining that the company appeared to be mis-managing funds, and apparently didn't even blink an eye (other than to note it I guess) that the deal that he thought was selling his shares back to the company was instead written to sell it to the CEO personally.
CEO may have been crooked as any man could be, but the co-founders own complaint really makes it seem like he walked through his entire run there with his eyes tightly shut.
> The lawsuit goes on to say the $100 is the price the co-founder originally paid for the shares when the company was formed.
My former business partner tried to pull a similar stunt. He mailed me a check for a few dollars (the original purchase price), along with a cheery matter-of-fact explanation. He assumed I'd cash the check and in doing so give away my vested shares for almost nothing, but luckily I did not. Sent a letter back explicitly stating I continued to own the stock and that the shares were not eligible for repurchase under our repurchase agreement.
Yeah, I had a similar conversation with a founder a while back. Company he had founded was getting acquired. He was a minority stakeholder at this point. No ability to oppose the acquisition. Acquiring company wanted him to sign docs saying "I relinquish all my interest for no compensation". His answer was basically something like "I think you can spare $10000 if this is that important"
Yes, gifts are legal. But the attorneys weren't asking for a gift, they were asking him to sign a binding legal document. And generally the law does not recognize "gifts" to for-profit entities; such a transaction is characterized as a contribution to the entity...which in the original comment would have defeated the very purpose of the agreement the attorneys were asking him to sign.
Furthermore, consideration isn't required to enforce future performance. It's a fundamental basic requirement to have a contract in the first place. Without consideration, there is no contract.
Hanging onto stock from a company I co-founded a few years ago has caused me tons of stress because that company constantly files for tax extensions forcing me to do so as well.
I have other financial processes which rely upon timely processing of my completed tax filing, and every year it causes me trouble. So if something is thought to be worthless and about to fold, "just hang onto it" could cause a non-zero amount of headaches.
Guessing you're a member of an LLC or shareholder of an S-Corp with pass-through taxation. Can't agree more what a pain it is to wait on your old partners to do their taxes every year before you can do your own.
If you're just holding shares/options in a corporation that isn't going through ownership changes, that problem doesn't exist.
That said, there are still valid reasons to cut ties with past partners/employers.
I feel for the original commenter. My cofounders and I traded the hassle of personal tax involvement for double taxation with my C-corp, and it was truly one of the best business decisions we have ever made.
It's obviously not for the $100, that's just a small, round value to make it legal (some money has to change hands, even if just $1.)
Likely the CEO explains that it's worth nothing, they're re-organizing things for such and such a purpose, and the 15% stake in the cap tables is an inconvenience preventing a possible deal. Please could you do us a favor and help us clear that from the cap table.
My immediate thought exactly. You'd have to be absolutely flat broke for this to make any sense whatsoever. Why sell it at all? And, if it's so worthless, wouldn't you be more than a bit suspicious if the CEO were so keen to buy it off you? Something here smells off to me.
I assume the deal was for something else... Eg. "Sign this deal for 100 bucks and we'll have a shorter list of people to consult at every shareholders meeting. In return, we'll consider you for investment opportunities for your next startup "
I still own equity in companies I started in the past and no longer have any day-to-day participation in that I'm happy to hold on to.
I've also done what the founder in the article has done - sold equity for very little.
The reasons for doing so are various - most of those reasons being more practical or rational than you might expect.
In my case, I sold my share because I had no faith in the vision, or faith in the potential or even worth of what we pivoted to. I had enough equity that I had a fiduciary responsibility to further the goals of something I was confident would tank the company. It was either fight the board/VCs and my cofounder, risk being sued for not acting in the best interests of shareholders, or sell me stake and move on.
Said company went out of business 2 months later as it pursued its unviable, worthless pivot.
If you want to know, watch Dr Phil interviewing people getting conned in romance scams or Unusual Suspects real life crime show where a “best friend” murders him to avoid getting caught in a Ponzi/fraud.
Human nature is to trust on face value. Sometimes that trust is not warranted.
I assume I can be fooled.
I for many people including me, defence against dog eating dog business has to be learned.
