#CofounderPrenups and why they matter: The Friend

Last updated: 5 August 2024. 

Tom* and James had been in the same circle for years so starting a business together was a no-brainer. They set out with the best of intentions and absolutely no prenup whatsoever. What could possibly go wrong?

*Identifying details have been changed to protect the (very) guilty.

Things change

“We had a lot of successes, a lot of wins” muses Tom, thinking back on the early period of his venture with James, “but over time, people’s motivations can naturally change.” 

“You know, people get married, people get divorced, people have children and people like, you know… life naturally evolves. And the reality of it is that as people change their outlook, their commitment to the business can wane”.

No safety net

“When we set the business up, I was very naive and we didn't have good corporate governance in place” he remembers, looking back on where things went wrong.

“My co-founder decided that he didn't want to have an active role within the business, but actually he wanted to withdraw the same amount they had always withdrawn.”

Without any form of prenup in place, Tom was fully exposed to the shifting dynamic and his co-founder’s exploitation of business resources.

“There was no safety net, no safeguards to protect the business and as you get later into the business, it becomes harder and harder to make that happen.”

“When my business partner decided he wanted to work part time on the business,” Tom said, “I continued to operate and just found it completely demotivating. It wasn't a great time and it just built up to the point that something had to give. And I decided that I was going to leave the business and move on”.

“I've learned an incredible amount and seen what to do and what not to do. Having good corporate governance, having protections in place… these are absolutely critical. When it came to creating my next company, they were in place from the outset”.

Basic equations

If a prenup had been in force - linking gains to productivity or output - then Tom would’ve been within his rights to prevent his co-founder taking from a business that he wasn’t contributing too.

Ultimately, Tom lost his business and his friendship.

“The last time I spoke to him was when he had put the business into insolvency proceedings and he didn't inform me directly. I was told by an employee of the business - I lost all my life savings basically off the back of sorting it all out.”

“There is no relationship now.”

Avoid a similar fate

Embarking on a new business venture? Don't make the same mistakes as Tom, book a free, no-obligation chat with us and we'll help you sort your co-founder prenup.

Get some time in the diary.