# Dissolving a Startup and Forming a New Company to Produce the Same Product **URL:** \ **Category:** Factual Questions\ **Created:** [June 9, 2010, 4:26pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551 "2010-06-09T16:26:30Z")\ **Posts on this page:** 14\ **Page:** 1
**Author:** ![King\_Might](https://avatars.discourse-cdn.com/v4/letter/k/8e8cbc/32.png) [@King\_Might](https://boards.straightdope.com/u/King_Might)\ **Post date:** [June 9, 2010, 4:26pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/1 "2010-06-09T16:26:30Z")
I’ve a friend who’s spent a good deal of time and money working on launching a startup. He and his partner are no longer on speaking terms, and the partner is threatening to dissolve the company and launch his own business using the intellectual property they jointly developed. I’m sure business just doesn’t work that way, but why? ---
**Author:** ![running\_coach](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/running_coach/32/15836_2.png) [@running\_coach](https://boards.straightdope.com/u/running_coach)\ **Post date:** [June 9, 2010, 4:34pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/2 "2010-06-09T16:34:17Z")
Sounds like a lawyer is needed. ---
**Author:** ![kayaker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kayaker/32/441_2.png) [@kayaker](https://boards.straightdope.com/u/kayaker)\ **Post date:** [June 9, 2010, 4:49pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/3 "2010-06-09T16:49:49Z")
Ideally, the same lawyer who did the original start up work. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [June 9, 2010, 4:58pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/4 "2010-06-09T16:58:37Z")
Let me guess… no operating agreement? If they went into business and did everything right, they have contracts and other agreements that will tell them exactly how this will go - they’ll have agreements about ownership of the IP, non-competes, termination of the partnership, etc. If they’re like most people, all they have is a handshake. They went into it blind, thinking that everything would be wonderful. Maybe I’m just a little bitter over seeing several of these partnerships dissolve this year, but I’m kind of at a point where I wish them all the miserable, drawn-out, expensive legal battles they deserve. You can pay a lawyer $1,000 to set it up right, or you can pay them $20,000 to litigate it after the fact. ---
**Author:** ![Gary\_Robson](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gary_robson/32/3448_2.png) [@Gary\_Robson](https://boards.straightdope.com/u/Gary_Robson)\ **Post date:** [June 9, 2010, 8:02pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/5 "2010-06-09T20:02:00Z")
If you’re looking for legal advice for your friend, the best you’re going to get here is, call a lawyer right quick. Whether this was a partnership or corporation, laws vary from state to state and this kind of dissolution can get _very_ complicated. If you’re just curious, then by all means throw us a bit more data and perhaps we can give you an overview of approximately how things work. ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [June 9, 2010, 8:12pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/6 "2010-06-09T20:12:41Z")
> [@dracoi](#): > > If they’re like most people, all they have is a handshake. They went into it blind, thinking that everything would be wonderful. Maybe I’m just a little bitter over seeing several of these partnerships dissolve this year, but I’m kind of at a point where I wish them all the miserable, drawn-out, expensive legal battles they deserve. You can pay a lawyer $1,000 to set it up right, or you can pay them $20,000 to litigate it after the fact. Heck, you don’t even need that. Any half-assed partnership agreement you scribble down on a napkin would work as long you cover a few decent basics. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [June 9, 2010, 10:50pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/7 "2010-06-09T22:50:00Z")
> [@smiling\_bandit](#): > > Heck, you don’t even need that. Any half-assed partnership agreement you scribble down on a napkin would work as long you cover a few decent basics. It’s a start, yes, but most people don’t anticipate a lot of the issues involved. Nobody thinks about partner disability, buy-sell agreements, transfer of ownership due to death or divorce, or allocation of final debt/expenses. Everyone assumes they will be healthy, happy and profitable when they scribble things on the back of a napkin. When things get difficult, they realize that they didn’t talk about what happens when one partner breaks a leg, when one dies and the heirs now legally own half the company, or when someone has to kick in extra money to keep the business afloat. ---
**Author:** ![code\_grey](https://avatars.discourse-cdn.com/v4/letter/c/f4b2a3/32.png) [@code\_grey](https://boards.straightdope.com/u/code_grey)\ **Post date:** [June 10, 2010, 4:13am UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/8 "2010-06-10T04:13:31Z")
**dracoi** , sounds you like are a pro, right? Question for you - could a committee of professional lawyers save future generations of startups that thousand dollars by compiling a software “expert system” to help founders structure their company not optimally but “reasonably well”? I envision it as consisting of a big flowchart / decision tree, perhaps reminiscent of the tax code and similar. That way the founders could just play around adjusting parameters until the system generates a contract that satisfies them. Plus, maybe this would make it easier to share contracts between startups since probably similar situations show up regularly. Anybody has any thoughts on this? (Sorry for the hijack). ---
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [June 10, 2010, 12:29pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/9 "2010-06-10T12:29:01Z")
> [@kayaker](#): > > Ideally, the same lawyer who did the original start up work. Absolutely not. Assuming it was one lawyer who acted for both of the principals to set up the company, that lawyer would be in a professional conflict of interest now, because the lawyer would owe a duty of professional loyalty to both of the principals. Since the principals are no longer in agreement, the lawyer can’t act for either one. ---
**Author:** ![fighting\_ignorant](https://avatars.discourse-cdn.com/v4/letter/f/ac8455/32.png) [@fighting\_ignorant](https://boards.straightdope.com/u/fighting_ignorant)\ **Post date:** [June 10, 2010, 12:36pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/10 "2010-06-10T12:36:57Z")
> [@code\_grey](#): > > **dracoi** , > > sounds you like are a pro, right? Question for you - could a committee of professional lawyers save future generations of startups that thousand dollars by compiling a software “expert system” to help founders structure their company not optimally but “reasonably well”? I envision it as consisting of a big flowchart / decision tree, perhaps reminiscent of the tax code and similar. That way the founders could just play around adjusting parameters until the system generates a contract that satisfies them. Plus, maybe this would make it easier to share contracts between startups since probably similar situations show up regularly. > > Anybody has any thoughts on this? (Sorry for the hijack). You mean like [this](http://www.quickforms.com/)? ---
**Author:** ![kayaker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kayaker/32/441_2.png) [@kayaker](https://boards.straightdope.com/u/kayaker)\ **Post date:** [June 10, 2010, 1:26pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/11 "2010-06-10T13:26:10Z")
> [@Northern\_Piper](#): > > Absolutely not. > > Assuming it was one lawyer who acted for both of the principals to set up the company, that lawyer would be in a professional conflict of interest now, because the lawyer would owe a duty of professional loyalty to both of the principals. Since the principals are no longer in agreement, the lawyer can’t act for either one. Thanks for the education! I was basing what I said on something that happened to me. A lawyer helped two of us form an LLC. My “partner” then wanted to leave at a later date. The attorney made it seem like she was representing the LLC, not either of us, so she would be able to work on the case. Wound up dissolving the LLC. IAsoooooNAL:D ---
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [June 10, 2010, 2:13pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/12 "2010-06-10T14:13:26Z")
If the two directing minds of the LLC were able to agree on what instructions the LLC would give to the lawyer, that’s a different situation. from the OP, it didn’t sound like that was the case - if a lawyer is getting contradictory instructions from the parties, the lawyer can’t act for either. ---
**Author:** ![Generic\_Userid](https://avatars.discourse-cdn.com/v4/letter/g/9fc29f/32.png) [@Generic\_Userid](https://boards.straightdope.com/u/Generic_Userid)\ **Post date:** [June 10, 2010, 2:26pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/13 "2010-06-10T14:26:53Z")
> [@fighting\_ignorant](#): > > You mean like [this](http://www.quickforms.com/)? I would just add that decision tree software (example: TaxCut, WillPower) is proliferating like bunnies … even without that handy link, I’d bet that you could go to your local Target / WalMart / generic store carrying software and find something relevent on the shelves. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [June 10, 2010, 10:37pm UTC](https://boards.straightdope.com/t/dissolving-a-startup-and-forming-a-new-company-to-produce-the-same-product/542551/14 "2010-06-10T22:37:20Z")
> [@code\_grey](#): > > **dracoi** , > > sounds you like are a pro, right? Question for you - could a committee of professional lawyers save future generations of startups that thousand dollars by compiling a software “expert system” to help founders structure their company not optimally but “reasonably well”? I envision it as consisting of a big flowchart / decision tree, perhaps reminiscent of the tax code and similar. That way the founders could just play around adjusting parameters until the system generates a contract that satisfies them. Plus, maybe this would make it easier to share contracts between startups since probably similar situations show up regularly. > > Anybody has any thoughts on this? (Sorry for the hijack). I’m a CPA, not a lawyer, and I’m constantly referring clients to lawyers to make sure they have their ducks in a row. There are legal forms and software out there that may help, and there are some good books on the subject. A do-it-yourself approach is better than nothing, but it’s still no substitute for a lawyer who has years of education and experience on the subject. Paying a few fees up front to get the right advice can save you so much later.