The Promoter Who Took the Founder Shares
Priya incorporated a Delaware corporation, Northwind Labs, to commercialize a scheduling tool. She was the sole incorporator and initially the only shareholder, issuing herself 4,000,000 shares at $0.0001 par. Six weeks later she brought in a co-founder, Tomas, and an angel investor, Cora. Tomas received 1,000,000 shares for signing a three-year full-time commitment and assigning his prior code to the company. Cora invested $250,000 for 1,000,000 newly issued shares, implying a $1.5 million post-money valuation. No stock purchase agreements were signed; the transactions were recorded only in a spreadsheet and board minutes that Priya drafted and signed alone. Priya never filed an 83(b) election. Fourteen months later Tomas leaves, claiming his shares are fully vested and worth $1.5 million based on Cora's price. Cora demands her money back, alleging she was misled about the cap table.
1. Evaluate Tomas's vesting claim. What default rule applies absent a written agreement, and what is the likely outcome?
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Absent a written restricted stock purchase agreement with a vesting schedule and repurchase right, shares issued to a founder are generally fully vested at issuance. Vesting is a contractual creation, not a default of corporate law. Tomas therefore has a strong literal argument that his 1,000,000 shares carry no forfeiture condition.
But the analysis does not end there. The issuance was documented only in a spreadsheet and in minutes Priya signed alone. That raises three issues. First, whether the board validly authorized the issuance and on what terms; if the minutes recite a vesting condition, Tomas is bound even without a separate agreement. Second, whether the shares were validly issued for consideration, since Tomas's promise of future services and IP assignment may or may not constitute adequate consideration depending on how the board valued it. Third, Priya's duties as controlling shareholder and director: issuing herself 4,000,000 shares and setting Tomas's terms without independent approval invites a claim that she breached the duty of loyalty or unfairly dealt with a fellow founder.
Practical outcome: Tomas likely has a credible claim to vested shares, but the company has defenses and leverage. Settlement at a discount, with a release and repurchase of unvested portions, is the realistic path.
2. Assess Cora's rescission demand. What must she prove, and what facts help or hurt her?
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Cora's claim sounds in fraud or misrepresentation in the sale of securities. She must show a material misstatement or omission of fact, scienter or at least negligence depending on the theory, justifiable reliance, and damages. A federal Rule 10b-5 claim requires scienter; a state blue-sky claim may require only negligence.
Facts helping Cora: no stock purchase agreement, no disclosure document, no formal cap table delivered, and Priya unilaterally papered the transactions. A reasonable investor would want to know the founder split and that Tomas's shares might be unvested. If Priya described the cap table inaccurately, that is a material misstatement.
Facts hurting Cora: she is an angel investor, likely sophisticated, and had access to the company. The $1.5 million post-money valuation she cites is itself derived from her own investment, so she knew the implied price. She apparently conducted limited diligence and asked for no documents. Reliance on silence is harder to establish when the buyer could have demanded records.
Rescission is also complicated because the company has presumably spent the money and the shares are outstanding. Damages may be a more realistic remedy than unwinding the investment. Cora should preserve the spreadsheet and minutes as evidence.
3. Priya asks what she should have done differently at each stage. Give a corrective roadmap covering formation, the co-founder grant, and the angel round.
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Formation: adopt bylaws and a written stockholders' agreement, hold a proper organizational meeting, and issue founder shares under a restricted stock purchase agreement with a four-year vesting schedule, a one-year cliff, and a company repurchase right at cost for unvested shares. Priya should have filed an 83(b) election within 30 days of her own issuance; missing it means she cannot later elect, and any future vesting would be taxed at ordinary rates on each vest as it vests. She should confirm whether her shares were subject to vesting at all.
Co-founder grant: require a written agreement covering vesting, IP assignment, confidentiality, non-solicitation where enforceable, and board approval of the issuance. Document the board's valuation of Tomas's contribution. A spreadsheet is not a stock ledger.
Angel round: use a stock purchase agreement with representations, a disclosure schedule, and a capitalization table delivered to the investor. Obtain board and stockholder approval of the new issuance, confirm the authorized share count supports it, and check any preemptive rights. Consider a stockholders' agreement with information rights and drag-along provisions.
Going forward: reconstruct the ledger, ratify prior issuances by board resolution, and have counsel review before any further financing.