Tips for Drafting a California Last Will and Testament
May 24 2019 0

Legally Dismissing a Founder as a Company Employee

It is reasonable to think that the founder of a business would prefer to stay in charge of the company until either they go into retirement or the business closes its doors for good. Without the founder, the business wouldn’t even be an actual thing; so obviously, the founder should maintain authority over their own creation, right? There are, however, circumstances where CEOs and founders are displaced from their jobs in a company.

It might not come across as just that a founder would build a company from the ground up, work unheard of hours every single day just to get the business going, and obtain investors, only to then have those investors determine that another person entirely should be heading up the business into future growth. Any time cash is on the table, however, investors will ensure that they are always doing what is in the best interest of the company. Evicting a founder appears to be the most prevalent in the tech industry, and the subsequent list gives only a few instances of founders who have abdicated their proverbial thrones:

  • Steve Jobs, Apple (although he did resume his spot some years later)
  • Eduardo Saverin, Co-founder of Facebook
  • Noah Glass, Twitter
  • Jerry Yang, Yahoo!
  • Andrew Mason, Groupon
  • Martin Eberhard, Tesla

Dismissing a company founder may not feel like the ethical thing to do. It is, however, a completely legal and sometimes unavoidable practice.

How a Founder Can be Removed

Founders are typically removed following a majority vote on behalf of the board of directors for that company. The board of directors is the entity that is in charge of Legally Dismissing a Founder as a Company Employeemanaging the corporation’s administration, up to and including the person who gets to be in charge. Should the board of directors genuinely believe that their founder is not prepared or able to act according to the concerns of the company’s shareholders, they can then fire the company founder, provided that he or she does not own a controlling share of the company. Founders typically own far less than a majority share as a business expands and investors thin out the founder’s shares.

One thing that might indicate that a founder should probably be dismissed is the poor financial achievement of the business during the time they were in charge. Financial performance, however, isn’t the only grounds for removing the founder. In certain circumstances, the board of directors might not agree with the founder when it comes to his overall plan for the future of the company.

Removing a founder from his or her position is a tough choice to make and a dismissed founder might very well question whether or not their dismissal was reasonable and/or legal. If you have questions concerning the dismissal of a CEO or founder of your business, please get in touch with the Leiva Law Firm by calling 818-519-4465. We have an extensive background in helping businesses avoid liability when they have a founder legitimately removed from the business. We can help you examine your legal rights in Spanish or in English.

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