Comes looking with no contract and none of his own commitment to show? At least the Facebook case had a signed contract that could be dug out, and proofs of payment.
IANAL but a verbal agreement can be a legally binding contract.... which can be hard to prove in court.
But apparently if you have been paid for a job you agreed to do then that's considered a contract even if no documents were signed. If there are any lawyers out there please correct me.
A contract is for a fixed amount - not for an equity sharing agreement. When the initial $500 was invested, papers should have been drawn up saying, "okay, i own 50% and you own 50%". A $4000/week business is easily worth $1 milion. The guy sees that and is now trying to sneak his way in.
People often try to take credit for your success, but back away from your failures. Since OP presumably has a $1 million dollar idea, he could get a MUCH better valuation - give away 20% for $200k.
By my reading of it he made two payments of $500 dollars which were accepted (and are almost certainly traceable). It's almost certain that there are e-mails showing a business relationship between the two of them too.
> Comes looking with no contract and none of his own commitment to show?
I'm not a lawyer, but I did study a little business law, especially contracts. Contrary to common belief, you don't need something in writing for an agreement to be considered a contract. See, for instance:
The transfer of the $1000 is pretty clear evidence of an agreement. Then there's records of the regular calls/chats. The partner, while maybe a jerk, has some claims of ownership here. (Also, I think he's probably less of a malicious jerk and more likely he's feeling hurt/threatened/betrayed - the threats to sue were in response to being told he's being kicked out of a business he presumably thinks he owns half of, took a risk on with his cash, and has put in some hours of his life)
ownership of what, though? As an American citizen, you can't have ownership of an Indian corporation (as a individual shareholder). You'd have to do it through a subsidiary.
Conversely, it's impossible for a Indian citizen to own individual ownership in a US company (unless it's through a company JV type arrangement, or he has a legal visa to work in the US - this is the founders dilemma that often plagues startups)
Additionally, it's near impossible to sue a foreign corporation without a US presence.
This whole situation is sticky, and the US "investor" has little leverage. One would think that if he really wanted to take 50% ownership of the company, he would have thought through all these issues - but he didn't.
Since he was the one that threatened to sue, you have to play hardball - you have to take that threat seriously, even though it might not be credible.
Rohan: Remember that any admission that equity should be given can later be used in court (if somehow, someway it ends up in a court case...but always prepare for the D-Day case)
Remember: you own the code, the servers, and the bank accounts. You control all the leverage. What has been said is done for now, but if I were you I would calculate all the hours you put into the project, and show that the $500 doesn't take you very fair.
Additionally, someone that "wants 50% of the profits for the next 2 months". Seriously, what kind of business arrangement is that?
As I said in another response, remember that he's also responsible for 50% of the costs. As managing partner, you can take on additional equity, and he'd have to match that, or risk being diluted.
> Conversely, it's impossible for a Indian citizen to own individual ownership in a US company (unless it's through a company JV type arrangement, or he has a legal visa to work in the US - this is the founders dilemma that often plagues startups)
Actually, it's easy for an Indian to have an ownership interest in a US company.
The founders problem is that US immigration law doesn't have a special case for self-employment and SE is what a startup looks like.
In practical purposes, this isn't really going to happen. If you really wanted to be on the up and up about it, OP can just tell the guy that he's closing the venture to pursue other projects.
Presumably, he can use the business model knowledge to get a new domain, start a real company, and redo the same business model on his own.
It sounds like the US guy is really going to push him around. Sue him? How is he going to serve the papers in India? With no contract? Really don't think lawyer would take that case.
If it comes down to a bunch of IM's sent, well then it'll be case of "was this an equity investment, or was it a loan". If the OP paid him back, a strong argument could be made that it was a loan.
Comments
Not worth it now but what happens in the future if his company does well and the cofounder comes looking?
Comes looking with no contract and none of his own commitment to show? At least the Facebook case had a signed contract that could be dug out, and proofs of payment.
IANAL but a verbal agreement can be a legally binding contract.... which can be hard to prove in court.
But apparently if you have been paid for a job you agreed to do then that's considered a contract even if no documents were signed. If there are any lawyers out there please correct me.
A contract is for a fixed amount - not for an equity sharing agreement. When the initial $500 was invested, papers should have been drawn up saying, "okay, i own 50% and you own 50%". A $4000/week business is easily worth $1 milion. The guy sees that and is now trying to sneak his way in.
People often try to take credit for your success, but back away from your failures. Since OP presumably has a $1 million dollar idea, he could get a MUCH better valuation - give away 20% for $200k.
By my reading of it he made two payments of $500 dollars which were accepted (and are almost certainly traceable). It's almost certain that there are e-mails showing a business relationship between the two of them too.
It's not clear but it's not nothing either.
> Comes looking with no contract and none of his own commitment to show?
I'm not a lawyer, but I did study a little business law, especially contracts. Contrary to common belief, you don't need something in writing for an agreement to be considered a contract. See, for instance:
http://en.wikipedia.org/wiki/Implied-in-fact_contract
The transfer of the $1000 is pretty clear evidence of an agreement. Then there's records of the regular calls/chats. The partner, while maybe a jerk, has some claims of ownership here. (Also, I think he's probably less of a malicious jerk and more likely he's feeling hurt/threatened/betrayed - the threats to sue were in response to being told he's being kicked out of a business he presumably thinks he owns half of, took a risk on with his cash, and has put in some hours of his life)
ownership of what, though? As an American citizen, you can't have ownership of an Indian corporation (as a individual shareholder). You'd have to do it through a subsidiary.
Conversely, it's impossible for a Indian citizen to own individual ownership in a US company (unless it's through a company JV type arrangement, or he has a legal visa to work in the US - this is the founders dilemma that often plagues startups)
Additionally, it's near impossible to sue a foreign corporation without a US presence.
This whole situation is sticky, and the US "investor" has little leverage. One would think that if he really wanted to take 50% ownership of the company, he would have thought through all these issues - but he didn't.
Since he was the one that threatened to sue, you have to play hardball - you have to take that threat seriously, even though it might not be credible.
Rohan: Remember that any admission that equity should be given can later be used in court (if somehow, someway it ends up in a court case...but always prepare for the D-Day case)
Remember: you own the code, the servers, and the bank accounts. You control all the leverage. What has been said is done for now, but if I were you I would calculate all the hours you put into the project, and show that the $500 doesn't take you very fair.
Additionally, someone that "wants 50% of the profits for the next 2 months". Seriously, what kind of business arrangement is that?
As I said in another response, remember that he's also responsible for 50% of the costs. As managing partner, you can take on additional equity, and he'd have to match that, or risk being diluted.
> Conversely, it's impossible for a Indian citizen to own individual ownership in a US company (unless it's through a company JV type arrangement, or he has a legal visa to work in the US - this is the founders dilemma that often plagues startups)
Actually, it's easy for an Indian to have an ownership interest in a US company.
The founders problem is that US immigration law doesn't have a special case for self-employment and SE is what a startup looks like.
They make a movie about you!
In practical purposes, this isn't really going to happen. If you really wanted to be on the up and up about it, OP can just tell the guy that he's closing the venture to pursue other projects.
Presumably, he can use the business model knowledge to get a new domain, start a real company, and redo the same business model on his own.
It sounds like the US guy is really going to push him around. Sue him? How is he going to serve the papers in India? With no contract? Really don't think lawyer would take that case.
If it comes down to a bunch of IM's sent, well then it'll be case of "was this an equity investment, or was it a loan". If the OP paid him back, a strong argument could be made that it was a loan.