From Partners to Adversaries – What to Look Out For When Starting a Business


Your contact

Start-up founders often focus on the business and raising capital, whereby they often overlook the basic legal pitfalls when setting up their venture. This creates vulnerabilities for the founders, the investors, but also the business as such.

These business threats may range from intellectual property-related issues, regulatory matters to contractual topics such as getting a founders agreement or the right terms and conditions. In this blog, we have a closer look at one of the core legal threats when becoming an entrepreneur, namely the relationship between the partners and how you can mitigate this risk.

For many founders having proper contracts in place is not a priority, so they often only realise the importance of well-drafted agreements once legal issues arise. However, by this time solving legal problems will cost the start-up more money than drafting a proper contract would have cost in the first place. In some cases, it may even be the end of a business venture. Start-ups are often founded by more than one individual with differing interests; hence, there is room for disagreement. Even if in the beginning everybody pulls in the same direction this is bound to change at some point. By clearly outlining every founder’s rights and responsibilities, the partners can mitigate the risk arising out of differing opinions. A famous example of when the lack of an agreement between partners led to legal problems is the Zuckerberg/Winklevoss Facebook case. The case dealt with whether the idea for the social network was stolen by Zuckerberg. The dispute dragged on for several years before it was eventually settled. Nevertheless, it shows the importance of having a contract setting out the relationship between co-founders to ensure the continuity of the business venture.

Partners need to agree at an early stage on the key aspects of a venture, where they want to take their idea, how they will work together and maybe at some point end their business relationship. It is important to pick one’s co-founders carefully and set a clear basis for cooperation to make sure that partners do not end up to be adversaries.

For some guidance in this matter, we have drafted the checklist set out below giving you some indication of what should be included in such an agreement to make sure that you will not end up becoming adversaries.

Checklist:

  1. What is the overall vision and goal of the business?
  2. Who gets what percentage of the business?
  3. What is the capital contribution of each investor?
  4. Is the percentage ownership subject to vesting based on continued participation in the business?
  5. What are the roles and responsibilities of the founders?
  6. What happens if one founder wants to leave the business? Is there a share buyback option? At what price?
  7. What kind of commitment is expected of each founder?
  8. How are daily decisions being taken? How are the key decisions being taken?
  9. Can a founder be removed as an employee of the business?
  10. How will the sale of the business be decided?

This is just one out of many pitfalls to avoid when starting your business.


Share post



most read


Highlights

MLL Legal

MLL Legal is one of the leading law firms in Switzerland with offices in Zurich, Geneva, Zug, Lausanne, London and Madrid. We advise our clients in all areas of business law and stand out in particular for our first-class industry expertise in technical-innovative specialist areas, but also in regulated industries.

MLL Legal

Newsletter

Much is still unclear in relation to liability questions around AI tools.

Read our latest post about “Liability during the Lifecycle of an AI Tool” and download our white paper.

Show article.

Our Story

MLL Legal is a leading Swiss law firm with a history that dates back to 1885. The firm has grown both organically and by means of strategic mergers, the latest of which took place on 1st July 2021 between Meyerlustenberger Lachenal and FRORIEP.

The merger establishes MLL Legal, a combined new entity as one of the largest commercial law firms in Switzerland with 150 lawyers in four offices in Switzerland and two offices abroad, in London and Madrid serving clients seeking Swiss law advice.

Our firm has a strong international profile and brings together recognised leadership and expertise in all areas of law affecting commerce today, with a focus on high-tech, innovative and regulated sectors. 

About us

Publications

Click here for our latest publications

COVID-19

Read all our legal updates on the impact of COVID-19 for businesses.

COVID-19 Information

Job openings

Looking for a new challenge?

Our talented and ambitious teams are motivated by a common vision to succeed. We value open and straightforward communication accross all levels of the organisation in a supportive working environment.

Job openings

Firm News

Click here for our latest firm news.

Our Team

The regulatory and technological landscape continually require businesses to adapt and evolve.
Our 150+ lawyers are continuously innovating and striving for improvement in everything they do. We embrace new ideas and technologies, combining our wealth of expertise with creative thinking and diligence. With our hands-on approach, we implement viable solutions for the most complex legal challenges.

Our Team.

LexCast – the podcast series by MLL NexGen

Smart legal education on the go. The LexCast hosted by MLL NexGen provides legal insights in a short format that allows listeners to educate themselves on and about legal issues wherever they are and whenever they find the time.

Listen to our podcast series – stay tuned.

MLL Legal on Social Media

Follow us on LinkedIn.