Ep 21: Meghan parts ways with her business partner

[00:00:00] Meghan: I think the first thing that we did was we both thought about what it could look like, and we tried to come up with some agreements on our own. How could I buy him out? How could the company buy him out? How could he exit without the risk of things going south to the point where he may have to try to come back in and help rescue it. So we started working on our own and together. Okay, if we did this and that and this many years, and we just realized that we were making a tangle and it actually brought up more questions than we had answers to.

[00:00:40] Host: Hi, This is Small Business -- a weekly podcast -- brought to you by Amazon. I’m your host, Andrea Marquez. This show is all about learning how to start, build and grow your small business – at the end of each episode I like to call out key lessons learned during the episode so it’s easier for you to digest.

A difficult conversation that not a lot of people talk about is [00:01:00] parting ways with a business partner. Maybe you both just don’t want to work together any more or are in different stages of life or maybe you had a falling out. Whether it’s a friendly split or not – it’s tough and there’s so much that goes into separating with a co-founder like how do you deal with all the legalities? How do you make sure that your business isn’t affected during that process because it could take up to months to finalize the split? Is there something that you could do early on to prepare for it? Should you even go through with it?

Coming up – Meghan Wolfgram, Founder and CEO of SwiftPaws, a health & wellness enrichment brand for pets, tells us about her experience when her business partner decided he wanted to part ways with the business. Naveen Thomas, Director of the Business Transactions Clinic and Adjunct Professor of Law at New York University and one of our guests who you might remember from season 1, comes back to help us unpack all the legal jargon that might show up in a separation agreement.

[00:02:00] Andrea: Megan thank you so much for being on This is Small Business today.

[00:02:03] Meghan: Andrea, thank you so much for having me. It's a pleasure.

[00:02:05] Andrea: Tell me about SwiftPaws and how it came to be.

[00:02:08] Meghan: So SwiftPaws is an American manufacturer of enrichment product for pets, and what that means is that our flagship product is a kit that lets you create a game of chase in your backyard and you control the speed and direction of a fake squirrel that goes zipping around the course, and then your pet gets to chase and catch to their heart's content. And now we've grown into a family of products that all have something to do with enrichment, anything to get your dog or cats brain or body moving. And as we grow, we look forward to offering that for other types of pets and species as well. It got started the year that I graduated from university. I'd just been working really hard and I thought, okay, instead of going straight into the workforce, let's take a summer off. Let's relax, have a little fun. And my idea of fun was to compete and train in dog agility with my dog at the time, [00:03:00] who was a miniature pincher named Pretzel. And I was thinking to myself, you know, what other dog sports are out there? It started to open up my viewpoint on what I could do with my dog.

My agility trainer at the time told me that she had never had more fun than when she participated in this thing called Lure coursing. So she explained it to me that it's this fake squirrel that gets dragged around the grass and the dogs get to chase it. And I'm like, oh my God, this sounds awesome. And Pretzel, I mean, he lived to chase things, squirrels in the backyard, lizards he loved chasing. And at the time, because he was a miniature pincher, he actually wasn't allowed to compete. So being a little bit stubborn and you can call it resilient or whatever term you want to use, I knew I had to try it, and by the time I looked into it, I realized that equipment cost like $4,000 and that just was not affordable for a recent college grad and I actually ended up building a machine with the help of my dad, who's a pretty handy guy.

[00:04:00] And at the end of the summer, I had a crude but working machine and it was awesome and Pretzel loved it. So to finish up the summer, go out with a bang, I decided to invite all my agility friends over for a big party Lure coring fun day. And we had 60 people show up cuz the word got out. And at that event, people came to me and said, hey, when are we gonna get together and do this again? And so it snowballed. So from there it turned into me providing this as an activity once a month in my hometown, just for fun. And about a year later is when we founded SwiftPaws as a company that could make this equipment cuz I realized that other people may wanna be able to have access to it too.

So Pretzel was the dog that got me into all of this, and I lost him last year, which was really hard. He was 14 and a half and I got him when I was 16 years old. And so that dog was my sidekick growing up. But one of the amazing things that the engineers that we were working with did early on was they put Pretzels paw print on the bottom of the design of the product. [00:05:00] And so what started out as just a really cute addition to the product has become a legacy. So Pretzel’s paw prints live on the bottom of every single one of our products. And I just think it's so cool that I get to carry his legacy on. It's literally the coolest thing I've ever done in my life, and I look forward to the next 10 years.

[00:05:20] Andrea: I think we could just end this interview here because this is beautiful. I have two dogs, Shakespeare and Juliet. They’re Cavalier King Charles Spaniels. And I can’t even think about the day they won’t be with me anymore. But… we’re here on a mission, to talk about going into business with a partner, or actually more specifically, parting ways with a business partner. Can you tell me about who you started SwiftPaws with?

[00:05:50] Meghan: So it takes a village, right? And in my case, when I did that very first event, that barbecue is actually when what ultimately would become my business partner [00:06:00] in starting SwiftPaws sort of approached me and John was my former business partner and he and I were in very different stages of our lives. I had just graduated college, he had recently retired, but we knew each other socially and he was a big part of my life back then. And so, whereas I was thinking about buckling down and starting to interview and looking for a real job, John saw this magical thing happen at this first event and he said, Hey. He said, you know what you guys built, that's really cool. Do you think that other people would want something like this? So it planted the seed that, hey, this thing that I just did for myself because I wanted to give it a try and it wasn't accessible. Maybe it's something that we could do for others.

[00:06:45] Andrea: And fast-forwarding a bit, when did you first have the conversation of potentially parting ways?

[00:06:50] Meghan: So he and I made the decision in 2017 to stop producing our one and only product at the time, which was the professional grade equipment, [00:07:00] and we took the resources we had and we turned those and focused them on developing what would become SwiftPaws Home, our consumer grade version. And that took longer than expected. It cost a little more than expected, but at the end were able to launch SwiftPaws Home with a successful Kickstarter in 2018.

Fast forward to early 2019, and that's when John approached me and he said, you know, from where this company started, this was something to have fun with, to iterate and test. I love being creative, coming up with new ideas, and you take it out into the field and you run dogs and you bring me back feedback and we work together. And he said, and now we are busting our butts inside of an office trying to manufacture and assemble because we did it all in house, the first thousand SwiftPaws Home units, and I say that with emphasis because up until that point, we had only ever made about 100 total [00:08:00] professional grade machines. So we went from a hundred machines in our whole lifetime of business to making a thousand in the first run. And so that's really, I think the turning point was he said, this is becoming a full-time job and he had come out of retirement in a way to start SwiftPaws with me. So really that's how he approached it. And looking back, I didn't see it at the time, but he really had the foresight to go, this is really a division of the paths. And he didn't see wanting to commit what he knew it was going to take, and he also didn't wanna hold the company back. So it was really a lot of foresight on his part to approach me that early in the year and say, let's work through this. I don't wanna hold the company back, but at the same time, I don't want another nine to five.

[00:08:50] Host: A small reminder that the information provided in this podcast is not legal advice and should not be construed as such. Instead, the information provided is for general informational purposes only. [00:09:00] Moreover, the information in this podcast does not create any attorney-client relationship between you and the podcast contributors or their respective employers. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. You should contact your attorney to obtain advice with respect to any particular legal matter. The hiring of an attorney is an important decision that should not be based solely on anything we speak about today.

[00:09:23] Andrea: Take me through what had to occur when the separation started.

[00:09:27] Meghan: So we knew that we didn't know how best to go about a split so we started reaching out and looking for resources. And just to put this into some timeframe perspective, he approached me in early 2019 in February or maybe March. And ultimately that wasn't completely finished until November of that same year. So the split did take quite a while, but I think having patience with these kinds of things is really a value. [00:10:00] Just taking a little bit of extra time to think about how best to go about it and to have everybody's best interests in mind. Your own, your partners, and the companies is worth taking a little bit of extra time to do. And I'm not a very patient person, so me saying that is a lot. It served us both well. I think the first thing that we did was we both thought about what it could look like, and we tried to come up with some agreements on our own. How could I buy him out? How could the company buy him out? How could he exit without the risk of things going south to the point where he may have to try to come back in and help rescue it. So we started working on our own and together. Okay, if we did this and that and this many years, and we just realized that we were making a tangle and it actually brought up more questions than we had answers to.

So probably about the summertime we connected with a local resource, shout out to Groundswell Startups, [00:11:00] which is a nonprofit startup incubator and mentorship resource. They're an amazing resource for founders, small businesses of any size, really. Even people just thinking about getting into it because they provide free resources and mentorship on a number of different levels. Everything from engineering to legal, to whatever you might be interested in. So we both approached this resource as, hey can the mentors at Groundswell sit down with us both and help us consider the company moving forward and how we can manage to part ways without hindering the company? And that was really the turning point where it went from he and I trying to figure out how can we make this agreement work without big risk to him and without hindering the company. And it wasn't until we got what I would consider to be real resources, who had seen these types of things before involved, where we started to actually put a semblance of how it could work together.

[00:11:57] Andrea: What are some of those considerations that were made [00:12:00] once you had that help that allowed you both to part ways in a safe way without disrupting the business or both of your investments?

[00:12:10] Meghan: Investment is a great point there because up until that point, the two of us had made significant financial investment into the company. So that was one huge consideration is, you know, how do we protect that investment and then how do we continue to move the needle forward for the company? So one thing that was brought up almost immediately that I wasn't thinking of at the time, because I was so focused on the interactions that we were working with, was the company is going to need more capital moving forward if it's to grow. We don't have enough cash in the bank to even purchase materials for another thousand units, by that time, we'd sold out of product. So okay, we don't have quite enough cash in the bank for another thousand units. And if I take what cash I have to buy John out, where's the company gonna be moving forward?

[00:13:00] So just even thinking long term on things like that, it was like, Okay, so now we're considering that the company is going to then have to move into raising capital post this split. And then how do we set that up to where the split isn't an issue? So that was one of the first things that the mentors sat down with and talked with us about. And ultimately, one thing that I do have to say is that I didn't realize quite how much of my best intentions and the company's best intentions my partner had at the time, because he kept bringing things up. Like, what about this? What about that? And I'm thinking to myself, gosh, could we just get this to the finish line? I just wanna move forward. All that uncertainty was keeping me up at night. And he was really right to question all the little nuance because once we did get professionals involved and we had you know both legal help and the mentor resources, those things come up later and I have gone on to raise money for the company and capital for the company. And if those things weren't so well taken care of in the agreement. [00:14:00] So for example, we assigned the patent, which was in both of our names to the company as an entity. Something as simple as that could cause trouble later on. If you haven't sorted it by the time that you're looking for future investment.

[00:14:14] Andrea: This was, to a certain extent, an amicable split, which is not always the case. Could you talk to me a little bit about how you were able to protect yourselves through this?

[00:14:25] Meghan: Yeah, that's a good point too, because one thing I don't think we've talked about yet is risk. So as much as when you're dealing with a separation or a split, you're talking about how much and the function and what about a future reward if the company goes on to have great success, right? But there's also the element of risk. So things as simple as if my former partner were to maintain an ownership equity, would he then still have a responsibility, even if only fiduciary to the company, but he's not affecting any change [00:15:00] so could the company go on to have a lot of new investors and potentially a new board? And maybe at some point I'm not even as involved as I once was. You know, all these things come

up and then what happens if there is a downside? And some of that responsibility falls back on somebody like him who hasn't been involved. So risk and how much risk aversion somebody has is really important to consider. How much exposure you want to have is really important to consider, and those are the types of things that we spoke about with the mentorship resources and then also on our own and together with legal resources.

Because, I was young, I didn't have a ton of assets, but as he was older, he had other assets that he wanted to protect as well. I think at the end of the day what, where we settled, which was the company actually repurchased his interest in the company. Um, but we also left him with something that, you know, if the company does have an upside later on or an exit, [00:16:00] there will be something there for him without the risk attachment and the responsibility attachment. And that took a very long time to work out, but it's ultimately very appropriate. And he was a huge part of this company getting formed. We were 50 50 partners. He carried me sometimes through the beginning stages of the company. He had a lot more business savvy than I did, and I might have had a little bit more energy. So we very well balanced each other. And, as much as I think he had my best interest in mind, I always, even when I was speaking on my own with legal resources, I always told them, in no way do I wanna limit what possible reward he could have coming to him. This is a very amicable split. I want to make sure that he's taken care of as well, and I think that's important too. If you were willing to go into a partnership with somebody, you should always remember, even if, you know, we butted heads [00:17:00] on various topics throughout the years. We had a very healthy working relationship that includes good and bad, but while we didn't always agree, I could always remember just why I got into business with him in the first place and the success that he helped the company find, so I would never regret taking a little bit of extra time and care to make sure that he was taken care of for the future of the company too.

[00:17:24] Andrea: I love the way you approached that. You mentioned that during this process, one question would lead to another, and in your view, what are the first few questions you should ask yourself when beginning to part ways with your business partner, especially when it's a 50/50 type of partnership?

[00:17:40] Meghan: I think the first question you should ask yourself is really the why, but the why from your own personal perspective. So in my case, I wasn't thinking about splitting, but he came to me and said, Hey, let's start thinking about this. So that was a bit of a surprise, but at the same time, then I had to think about, okay, [00:18:00] if we were going to split, how would I move the company forward?

The next question, I think you should ask yourself immediately after that. Would I be just as happy if the shoe was on the other foot? Especially if maybe the relationship isn't quite as strong or if there's some tension. One thing that I ultimately had to do was think about would I be willing to sign this agreement to take this deal to exit the company in the same way that I'm asking my partner to? And it took me a while before I got to that realization, and once I did, I actually eased up on some of the points. I thought, man, he's really being a stickler about this specific clause or this line and this agreement.

And then, I think it was maybe one of my mentors who runs a local doggy daycare, and she's the one who said, Meghan, would you take that deal? If you were the one leaving, would you be worried about that sentence in the agreement? And it did change my paradigm and perspective on it. [00:19:00] And it was probably a few months later when we finally ultimately closed on it. And there was one more thing because there's always one more thing. But at that point I was at so much peace with it that I said, of course. And it's, I think that's very important as much as the why are you splitting? Is it the right timing? Is it the right reason? But also then would I be willing to take the same that I'm asking?

[00:19:25] Andrea: I think this is a powerful question to ask yourself. And I don’t know if everyone takes the time to stop and think about it like this. As we know, things can get heated when money is at stake.

[00:19:37] Meghan: I think that so many times people have these types of experiences and they don't wanna talk about them, or there's a little bit of maybe shame or, you know, yeah. I used to have a business partner. I've just learned that honesty is the best policy and the company has had so much success since then. There were a lot of ups and downs. We had our moments of tension, [00:20:00] but now to be able to look back on it all and to see the company growing, he really truly had that foresight when he said, this is going somewhere. I'm not sure that this is the journey that I want to be on right now and I really have him to thank for that.

[00:20:13] Andrea: Meghan, thank you so much for being on This is Small Business.

[00:20:17] Meghan: Andrea, thank you for having me.

[00:20:21] Host: You're listening to This is Small Business, brought to you by Amazon. I’m your host, Andrea Marquez. That was Meghan Wolfgram, Founder and CEO of SwiftPaws. You can find out more about her company in our show notes on our website: Thisissmallbusinesspodcast.com.

Meghan gave us so much information about what went into the separation with her business partner. I didn’t expect that it could take months to part ways and I loved that she stressed the importance of being understanding and trying to put yourself in the shoes of the person who’s leaving especially if the split isn’t friendly. Did you know that more than half of the products sold in the Amazon store come from small-and-medium sized businesses? SwiftPaws is one of the many small businesses selling in the Amazon store who have tapped into some of the tools and resources offered to help them succeed and grow. Learn more about them in our show notes on our website ThisisSmallBusinesspodcast.com.

My next guest is a familiar voice that showed up in season 1 in Rod Johnson’s episode. Co-founder of Blk & Bold. In that episode we spoke about protecting yourselves when going into business with a partner. And since this episode talks about parting wasys with a partner, we knew we had to reach out to Naveen Thomas again. Naveen is the Director of the Business Transactions Clinic and Adjunct Professor of Law at NYU. He does a great job of explaining all the legal concerns that might pop up when you’re parting ways with a business partner. Let’s talk to Naveen.

[00:21:48] Andrea: So, what’s the first thing that happens when a founder decides to leave a company?

[00:21:53] Naveen Thomas: Usually when a founder departs a company, the company and its founders need to work out lots of issues, and they typically memorialize these terms [00:22:00] in a document called a separation agreement or some variation of that phrase. And this agreement can address a wide variety of issues, and it needs to be specific to each company's situation. There's no one off the shelf or off the internet template for a separation agreement that's necessarily gonna work for your company. You need to think through the issues that are specific to your company and each founder, both those who are staying and those who are leaving.

Now, some of the most common issues that a separation agreement would address are:

Would the departing founder's equity be repurchased? If so, at what price and at what time? If the departing founder contributed money, how are you gonna deal with that? Will the company repay it? Will that contribution be treated as debt or convertible debt? A separation agreement will almost always contain a release and waiver of claims, which basically states that neither party, neither the company nor the departing founder is going to sue one another. [00:23:00] They're basically saying they don't have any legal claims against one another.

Another clause that frequently appears in separation agreements are non-disparagement clauses, which basically says that neither party can say bad things about the other party, either in public or in private. These provisions are very common. Another common provision is a non-solicitation provision. Non-solicitation provisions can do many things. They typically prevent a departing founder soliciting or hiring away the company's employees. So the departing founder can't just take a whole team with them. They'll also prevent the departing founder from taking or working with the company's customers, or vendors or suppliers potentially. These are all things that should be thought about, carefully. How much of the departing founders’ activities do you really want to restrict here? Is it really a problem for them to work with the same customers or suppliers? [00:24:00] If not, then maybe you shouldn't include that restriction. This is in the spirit of being generous to and accommodating of the departing founder.

Another provision that sometimes appears in separation agreements, but shouldn't go without saying, is a non-competition provision or a non-compete for short. Basically, a non-compete prevents a departing founder from engaging in certain activities within a certain geographical territory for a specified amount of time. So there are basically three dimensions to a non-compete, right? The scope of the covered activities, the geography, and the duration, and all of these factors are really important to consider when you are drafting a non-compete provision. If you are going to draft a non-compete provision, it should typically be narrowly tailored to the activities that would really be harmful to the company.

[00:25:00] So before you even think about drafting a non-compete, you really should talk to a lawyer who is licensed to practice in the state in which you're located and can advise you regarding that state's laws. Now, if you don't want to use a non-compete because you think it's unnecessary or unfair and those things are often correct, then you can sometimes

accomplish some of the same goals using a non-disclosure agreement instead. If what you're really trying to prevent here is misuse of information by the departing founder, then the non-disclosure agreement might be more appropriate and less contentious.

[00:25:33] Andrea: Okay that was a lot. I wrote notes here so, to recap, you mentioned a waiver of claims where neither party can sue one another, non-disparagement clauses where neither party can say bad things about the other, non-solicitation provisions which prevent founders from doing various things like hiring away company employees, a non-compete which could get complicated depending on which state you’re in and, [00:26:00] non-disclosure agreements, which prevents recipients of disclosing confidential information. Having this overview, what are the usual issues that you see arise?

[00:26:13] Naveen Thomas: Many of the problems and arguments that tend to arise can be avoided by addressing these issues in advance. Preferably when you first start the company. But if not really at any point when things are still going well and you're more likely to come to a fair agreement with your co-founders. Now a lot of companies will agree on an operating agreement or a shareholder's agreement that specifically says what will happen if a particular founder leaves. And that can be a pretty complex process to navigate that you'll want to think carefully about, but there are other even more basic principles that can help you avoid a lot of these problems in the first place.

One of the most common points of disagreement in a separation is the amount of equity that each founder should have and retain. [00:27:00] In fact, discord over this issue often contributes to separations arising in the first place. So an early discussion, an agreement on each founder's equity. Is key to long-term harmony as well as an easy separation if necessary. Beyond just agreeing on equity stakes, the founders should often agree on a vesting schedule too. Now, according to a vesting schedule, the founder's equity gradually vests over a set period of time, often about four years. So if you leave the company after two years, you lose half of your equity because half of it is unvested at that point. If you leave after four years with a four-year vesting schedule, then you get to keep everything. And this is often seen as a fair way to reward a founder for their work with the uh, company at an early stage, even if they end up leaving. And it also gives them an incentive to stay with the company rather than just take with their equity and run. For this reason, venture capital firms and other experienced investors are usually gonna wanna make sure that all the founders and key employees have vesting schedules. [00:28:00] So this is particularly important if you anticipate seeking financing from any of those kinds of investors.

[00:28:08] Andrea: Okay, so if you're set up right from the beginning, you'll still be going through negotiations if and when the separation time comes, so how do you avoid disrupting your business while the negotiations are taking place?

[00:28:20] Naveen Thomas: I think a big part of this depends on how involved that founder is in the operations of the business. Sometimes a founder just contributes a lot of capital, but then kind of takes a step back and is rather passive in the business operations. Other times, a founder is integral to the business operations and needs to basically keep working until you find a suitable replacement or another way to make up for their impending departure. So as you can imagine, the issues that you need to address with each of those types of founders are quite a bit different. With the first founder who's just contributing capital, a lot of times what you need to consider is, you know, can the company repay whatever they contributed? [00:29:00] If not, how are you going to deal with that contribution? Can you treat it as convertible debt so that initially it's a loan, but if you enter into an equity financing, then that contribution will turn into equity at that point, that kind of approach really makes sense only if you're expecting venture capital investments, but otherwise you might need to trade it as just a loan.

[00:29:22] Andrea: Can you tell me some of the options that the remaining founder can think about when considering what to do with the departing founder's equity?

[00:29:30] Naveen Thomas: The company might be interested in repurchasing the departing founder’s equity, especially if its investors don't want this person who is no longer affiliated with the company to have a large economic and voting stake in it, where they can continue to exercise control of it even after they've left. So, will the company be repurchasing that equity and if so, at what price? If your company hasn't had an equity investment before, [00:30:00] it might be difficult to arrive at a fair valuation of that equity. And also if the company is going to be repurchasing, the departing founder's equity, will it repurchase it all at once, will it have enough money to do that or will it need to do this gradually over time? Those are issues that you might address in a separation agreement. There are a lot of financial obstacles that might get in the way of resolving that agreement, but there are different creative ways that you can approach that situation and arrive at a fair way to deal with the departing founders’ equity.

[00:30:35] Andrea: One thing that Meghan talked about was making sure that whatever is signed is good for both parties and thinking about it from the perspective of the person who's leaving versus the person who's staying and what does that mean in the future. How do you make sure that happens? Especially if the separation isn't friendly?

[00:30:50] Naveen Thomas: Often it takes a long time to work out the proper terms of a separation before the parties can actually sign it and the founder can depart cleanly. [00:31:00] During that time, the founders might need to continue to work together, even while they're negotiating the terms of this separation, and that can be a tricky situation. In any negotiation, it really helps to understand the other party's perspective, and when you're talking about co-founders, that's something that you're particularly well placed to do because you were just in the same situation working together as co-founders, so you should be able to understand where they're coming from. And you shouldn’t forget what their perspective is and what they're trying to get out of this. So try to really understand what their interests and concerns are in this separation. Why are they leaving? What are they hoping to do afterwards? And when you're trying to accommodate them, keep those specific interests in mind. And if there are any problems, any disagreements that you have in the negotiation, [00:32:00] remembering to focus on the underlying interests and concerns as opposed to just what your preferences are, will help you identify new solutions to those problems, rather than just argue back and forth about which party's position should prevail.

[00:32:18] Andrea: This has been a lot. But very very helpful. As one of my last questions, can you tell me about working with lawyers through a separation process like this?

[00:32:28] Naveen Thomas: If you've been running a company together, you might have a lawyer and you might consider that person to be your lawyer, but it's important to remember that if the lawyer is representing a business, their client is the business. That arrangement makes sense when the founders are working together to run the business, but when the founders are separating, their interests might diverge and that means that the company's lawyer might not be able to represent all of the founders together. [00:33:00] Instead, the departing founder may need to retain their own lawyer to advise 'em regarding the separation agreement and whether one lawyer can advise multiple founders in this process really depends on how aligned the founders are in their interests. Are those interests generally aligned or are they becoming antagonistic? The more divergent their interests become, the harder it is for one lawyer to represent them. In that case, each party might need their own lawyer to negotiate the separation agreement, and the departing founder in this situation, and their lawyer will want to review each provision in this separation agreement carefully in light of their anticipated activities.

I realize that many of the detailed terms that I described earlier can be a bit overwhelming. But if there's one thing that you should take away from this, it's that it's going to be easier [00:34:00] to think about and address these issues with your co-founders in advance while you're still working together then if you wait until your plans diverge.

[00:34:15] Host: That was Naveen Thomas, Director of the Business Transactions Clinic and Adjunct Professor of Law at New York University. Thank you for listening – when it comes to legalities, there are many many considerations and it can be overwhelming to go through these processes. The main thing that Naveen stressed and that we also learned from Meghan is that it’s better to have these conversations at the beginning of the business partnership rather if and when a founder or partner decided to leave. Here are other key takeaways:

• When it comes to separation agreements, there isn’t one size fits all. So make sure to not just get professional help, but get the right kind of help. We’ve talked about this in past episodes, but it’s worth mentioning how important it is to have legalities and agreements set in place that take into account a potential split, prior to the business setting off.
• [00:35:00] Here are some topics of conversation to have early on in your partnership: 1. Amount of equity each founder should retain; 2. A vesting schedule; and 3. Intellectual property ownership. Naveen mentioned several clauses to consider like a waiver of claims where neither party can sue one another, non-disparagement clauses where neither party can say bad things about the other, non-solicitation provisions which prevent founders from doing various things like hiring away company employees, a non-compete which could get complicated depending on which state you’re in but is meant to limit someone leaving from entering into something similar that could compete and, non-disclosure agreements, which prevents disclosing confidential information. That’s a lot. And this can be tricky to navigate, so again, make sure to seek the appropriate legal advice to make these decisions.
• [00:36:00] Within the bigger questions you should ask yourself if there is a split is, how do you protect your investments while still moving the needle forward for the company? Bigger questions need to be broken down into smaller ones that might not seem important now but will be down the line, like assigning patents for SwiftPaws and ensuring that they would still be able to look for investments.

When protecting yourself, consider each possible risk to staying or leaving the company. And take the time needed to do it right and consider all of the possible outcomes and contingencies that need to be in place. It’s better for each person, and for the business in the long-run. I love that Meghan stressed how important it is to be kind and to try and put yourself in the departing founder’s shoes when going over the agreement. Plus Naveen did say that – other than having one less person resent you – being generous towards the departing founder has other advantages like continuing to work well together while the separation agreement takes place because as we learned that could take months.

[00:37:00] I'm curious -- if you have a business partner, do you have anything set in place to protect each other and the business if either of you decide to leave? Or if you’re in the process of parting ways – how are you handling it? Reach out to us at thisissmallbusiness@amazon.com. Or let me know what you think of the episode by leaving a review on Apple Podcasts – it’s easier to do it through your phone. And if you liked what you heard -- I hope you'll share us with anyone else who needs to hear this!

That's it for episode 9 of season 2 of This is Small Business, brought to you by Amazon.

On our next episode, we’ll still be talking about business partners, but we’ll be taking a few steps back to discuss when you should consider a business partner and the pros and cons of having one with Dorielle Price & Jamelah Tucker, co-founders of Easy Peasie who also happen to be sisters. And when they have disagreements, they like to call mom.

Until next time – This is Small Business, I'm your host Andrea Marquez -- Hasta luego -- and thanks for listening! [00:38:00]

CREDITS: This is Small Business is brought to you by Amazon, with technical and story production by JAR Audio. [00:38:12]