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I'm a minority partner in an e-commerce startup, now departing due to personal reasons after being with the team for a couple of years.

Founders agreement has a clearly outlined 4-year vesting schedule with a 1-year cliff, and I'm past that cliff. The right to leave and maintain the share is also there. Roughly, out of my 10% share when fully accelerated, I'm departing with 5%.

The issue is: the company is in debt - and we have an argument whether the departing partner should cover any of it.

Due to favourable cashflow with our business model, the incoming revenue covers the debt gap, however in a hypothetical scenario when we terminate the company right now, the partners will be liable to pay a significant amount. The debt has been slowly decreasing over the past couple of quarters while the revenue steadily increases.

My argument is: I should be responsible for at most 5% of the debt, since the rest is distributed pro rata to remaining partners.

The counter-argument: I should be responsible for 10%, the fully accelerated share amount - because that's what it is at the time of departure. But then own 5% equity.

We've been generally following common practices when dealing with equity. Given a typical or common-sense approach - who's in the right?

Edit: Due to the nature of tax regulations in the country where we operate, the legal entity is a sole proprietorship, but in Founders Agreement we agreed to share the responsibility that the proprietor assumes as a result of us running the business (that is the only relevant clause in opening documents). So, technically the debt is guaranteed by partners pro rata.

The logic behind being responsible/being asked to compensate the debt today is that on a past occasion, when a major partner was considering leaving the team while a substantial debt was in place, the team convinced them to stay using argument of them not being able to cover the debt for their part (e.g. in case the company wind-ups next month) - but that notion was never formalized.

closed as unclear what you're asking by Brythan, Pete B., Nathan L, Dheer, BobbyScon Jun 3 '18 at 3:11

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    Unclear: Is it a partnership, or a corporation? If a corporation, is the debt owed by the corporation only, or was it guaranteed by any of the founders? – Chris W. Rea Jun 1 '18 at 0:32
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    Also, why should you be responsible for any of the debt held today, if they aren't actually winding up the company? IMHO, if you were to accept any responsibility for debt on a wind-up, it should only be in the eventuality that the company is actually wound up -- and only to the extent of your share of debt the company has today (i.e. not any responsibility for new debt.) – Chris W. Rea Jun 1 '18 at 0:35
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    Is there any indication of dealing with this in the opening documents? This really should be dealt with in writing. Common practice will vary substantially. You may need a lawyer. – Grade 'Eh' Bacon Jun 1 '18 at 0:45
  • @ChrisW.Rea updated the question for clarity – Bobby Jo Jun 1 '18 at 8:13
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You are responsible for 0 of the debt. If the partners try to force a liquidation, they are liable to damages TO YOU.

The company has a value. As you said:

Due to favourable cashflow with our business model, the incoming revenue covers the debt gap

This means that the company in itself is valuable. This is what you own. If the partners want to liquidate, then they basically are stealing the value you could have by selling the company, likely for a price HIGHER than the gap.

Unless the founders agreement holds you liable, you are not liable. Period.

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