Think Evil, and Early

The movie The Social Network takes place in a conference room, presumably at a law firm. Mark Zuckerberg and his lawyers sit across from Zuckerberg's former business partner and his lawyers and through flashbacks we learn how they ended up there. It's a clever narrative device and a post-worthy lesson for founders: in the best case scenario, maybe especially in the best case scenario - the company wildly succeeds - there may be disputes between the founders as to the distribution of that success.

Co-founders sue in bad case scenarios too. And medium case scenarios, I suppose. This is America. And, frankly, they might even have an understandable argument and claim. It might not even be them. It might be their son or widower or soon to be ex-spouse. 

There's an obvious enough strategy to eschew the worst of this: document partner rights, responsibilities and distribution rules (in the event of a break-up) at the outset. This is frequently not done, or done with enough care, for all the reasons you'd suspect. Timing wise, the outset is an unlikely and also awkward moment to consider the dissolution of the partnership.

Ironically, doing the necessary documentation here is not a particularly onerous exercise. It probably does not even necessarily require a lawyer. It is simply a matter of drafting provisions into some operative agreement (usually the Bylaws (if you're a corporation) or the Operating Agreement (if you're an LLC) or otherwise some kind of partnership agreement if the partnership is some other form).

The provisions in that operative agreement (even if your attorney does the drafting, make sure these issues are addressed) should memorialize in detail: a) the time or capital (as is relevant) each founder is expected to contribute, b) what percentage of the business each founder is expected to receive and in what form (profits, capital, assets, etc.) and if any vesting provisions apply, c) what happens in the event the business needs more capital, d) whether a partner can be removed for cause or without cause and how is that transacted (majority vote? unanimous vote?) FN1 and e) what happens when a person leaves the business (or dies) (i.e., how much does that person get and in what form (cash, equity, etc.).

These precautions can't prevent disputes. However, they can make any dispute considerably less problematic (monetarily and psychologically) for the on-going concerns of the business.

FN1
The removal issue in particular can be tricky. For example, it might seem strategic to include a provision in an operating agreement that prohibits any founder from being non-voluntarily removed from a management position since that would protect the founders from losing control of the company at some later date to subsequent investors. When you're starting a company it's natural to think that enemies will come from without not within. But business conflicts are a lot like the other conflicts in life. The bad guy is typically someone you already know.