How to Protect Yourself and Your Business if Your Co-Founder Jumps Ship  

During the early days of launching a business, many leaders feel confident their co-founders are in the game for the long run. However, sometimes co-founders make early or unplanned exits. Keep reading to learn things you can do to keep your sanity and your business intact during that unsettling time.

Prepare to Deal With Discouraged Investors

When a co-founder leaves the company, it could leave people so shaken up, they wonder if they should follow suit. That problem is especially common when people see co-founders as extremely visionary and integral to the company’s overall goals. Unfortunately, a co-founder’s departure may cause investors to balk and consider ceasing funding.

Several high-profile companies, including Amazon and Google, combatted the perception that only their founders provided lofty, inventive goals by encouraging their engineers to be highly innovative and offering financial rewards for potential risk-taking moves that may turn out to be highly profitable.

If you decide to take inspiration from the companies mentioned above, insist that your company’s inventive methods aren’t only tied to the co-founder who left. Thus, when talking with investors about what will happen due to your co-founder’s departure, speak frankly and emphasize the things about your company that should remain the same even though the leadership structure changed unexpectedly.

The more promptly you can discuss the matter honestly with your investors, the more likely it is they’ll feel assured your company remains in good hands and they won’t want to flee. If you get asked questions you can’t answer right away, admit your lack of knowledge and promise to keep investors updated as things progress.

Don’t Allow Co-Founders to Retain Intellectual Property Rights

You could face a very sticky situation if your co-founder suddenly leaves and possesses copyrights or trademarks for integral parts of your business, such as products or services. During the aftermath left by a recently departed co-founder, you may feel so frazzled you’re not exactly sure what your agreements say regarding copyrighted or trademarked material. To prevent that from happening, require all co-founders to sign agreements stating that all intellectual property rights belong to the company and not to individual people. It’s smart to create a founders’ agreement as early as possible and have it signed by all appropriate parties when circumstances are calm.

If you’re in need of guidance while creating a founder’s agreement, there are many templates available online. Generally, intellectual property rights are one of several major things to address in these documents.

Then, if there are any parts of the document that cause confusion, get the advice of a business lawyer before the agreement gets signed. If personal (verbal) agreements for founders have been brought up during discussions, document those in writing as well. It might be easier to make separate legal documents that address personal agreements, or you could just incorporate them into your general founders’ agreement.

If you don’t have a legally binding founder’s agreement in place and a co-founder leaves with valuable intellectual property, act quickly and consult a lawyer.

Fortunately, law firms have experience handling the needs of high-profile clients. They understand that if a co-founder exits and takes intellectual property, that action could compromise the future of the company, not to mention the employees and fellow corporate leaders. When you have legal concerns that stem from a co-founder’s exit, a lawyer may provide welcome peace of mind by answering the questions that have caused fear and doubt.

Draft Improved Contracts if Necessary

Proactive company leaders realize they don’t want to make it possible for co-founders to suddenly depart and set up their own competing companies. Thus, ideally, you should have non-compete and nondisclosure agreements as part of your founders’ agreement.

The former bars a founder from going to work for, or setting up, a competing company, while the latter prevents him or her from leaking company secrets. Keep in mind confidential information doesn’t only relate to the products or services your company offers, but the methods through which those things are offered. For example, maybe your company sells a type of mobile phone that’s 25 percent lighter than the next competing model. If a co-founder leaves and takes documents that describe materials from which the phone is made, he or she could gain a competitive edge.

If you made a blunder by not considering nondisclosure and noncompete agreements before a founder left, take decisive action by working with a lawyer to update your existing founders’ agreements so those components get added. Also, consider what to do if it becomes evident the departed co-founder is hindering your business operations as a competitor.

Maintain Good Relationships With All Employees

Although this article focuses chiefly on co-founders, this final section emphasizes how maintaining strong relationships with all employees is good for business. Why? Apart from the fact that it makes day-to-day operations easier, disgruntled workers could possibly cause as much harm to a company as a founder who has left. In fact, it’s particularly crucial to have strong relationships with those who have essential knowledge about the inner workings of your business.

There are several things that could make employees leave your company. They might feel they’re expected to work too many hours, or aren’t permitted to use creative freedom. Always strive to keep the lines of communications open so employees have voices when they feel dissatisfied. That way, you may be able to have a better employee retention track record and show workers that you truly care.

Besides letting employees know how much they matter, keep them abreast of company changes as much as possible. Like investors, they want to know they can still count on a source of stability following a founder’s departure.

There’s no straightforward way to navigate the sometimes uncertain business landscape after a founder leaves, because every situation is different. However, you can minimize problems by having legal documentation in place from the start, and taking decisive legal action when necessary after founders find work elsewhere.