June 10, 2026

By: Matthew R. Barnes

A recurring series exploring shareholder disputes, partnership conflicts, membership fights, and business breakups in the Keystone State. Follow the series here.

Many fast-growing companies are founded by friends, family, or colleagues. As these companies expand, founder disputes can emerge.

Founder disputes are not typical business disagreements. Founders often play many roles (owner, director, officer, employee, etc.), and that dynamic can create ambiguity about authority and responsibilities.

Early-stage companies often operate with informal governance, avoiding bylaws and legal formation. Decisions may occur via phone calls, text, Slack, or casual meetings, rather than formal meetings, including board sessions with a written agenda and a quorum. Personal relationships and reputations are closely tied to the venture, making disputes more intense and harder to separate.

Common Flashpoints

Founders should therefore recognize common flashpoints that can escalate into litigation, including but not limited to:

• Decision-making and control. Who holds valid board seats? Was the board properly constituted? Were actions properly approved?
• Fiduciary duties and oppression claims. Directors and controlling owners owe duties to the company and minority owners. Allegations of self-dealing, exclusion, or freeze-outs are common.
• Equity splits and vesting. Disputes arise over vesting terms, acceleration or waiver, and the impact of a founder’s departure on equity.
• Dilution and financing. New financing rounds affect control. Conflicts arise over preemptive rights, anti-dilution, Simple Agreement for Future Equity (SAFE)/note conversions, and whether a founder was bypassed in financing, resulting in unfavorable equity changes.
• Termination or expulsion of a founder. Issues include authority to remove an officer or terminate an employee, good/bad leaver provisions, and repurchase of shares.
• IP ownership. In startups, determining who owns intellectual property (IP) and how it can be used is critical. Disputes may arise when the company uses software or patents developed by a founder before incorporation, or when IP was not formally assigned to the company. These issues can significantly impact the company’s survival during founder disputes.
• Confidentiality and trade secrets. Handling of code, customer lists, and pricing, including alleged misuse or misappropriation.
• Non-compete and non-solicitation agreements. Scope, enforceability, and whether a departing founder can recruit team members, contractors, or customers. This area of law remains heavily dependent on state law and has seen significant development in recent years.
• Access to company systems and data. Who can restrict or revoke access to data, cloud services, analytics, or bank accounts, and under what authority?
• Compensation and expense reimbursement. Unpaid salary, bonuses, commissions, founder loans, and advances.

Key Documents and Evidence to Gather Early

Notwithstanding the status of a party, act quickly to collect and organize materials. Preserve all materials as-is; do not alter anything:

• Capitalization tables and equity instruments. Stock ledgers, option grants, SAFEs/notes, vesting schedules, and repurchase rights.
• Formation and governance. Certificates of incorporation, operating agreements, bylaws, stockholder/member agreements, voting agreements, and meeting minutes.
• Founder and general agreements. IP assignment, confidentiality, non-compete, non-solicitation, employment, consulting, contractor, and separation agreements.
• Financing and investor documents. Term sheets, investment agreements, rights of first refusal, and information rights.
• IP and product records. Invention logs, code repository ownership, domain registrations, patents, trademarks, copyrights, license agreements, and vendor contracts.
• Communications. Emails, instant messages (Slack, Microsoft Teams, etc.), phone records, and texts related to company decisions, approvals, and disputes.
• Banking and financials. Bank statements, accounting records, expense reports, reimbursements, loans, and wire transfers.
• Access logs and policies. System access lists, admin privileges, and security policies.

Do’s and Don’ts When a Founder Dispute Is Brewing

• Do preserve data. Save emails, instant messages, texts, code repositories, cloud storage, phone records, and devices. Pause routine deletion to ensure preservation.
• Do maintain confidentiality. Limit discussions to essential stakeholders and trusted advisors. Consult company counsel and use secure channels to further these communications.
• Do keep the business running. Protect customers, payroll, operations, and stabilize key vendor relationships.
• Do document decisions. Use formal board or manager approvals with dated, signed minutes, or written consents.
• Do consider early mediation. A neutral third party can help negotiate options before positions harden.
• Don’t engage in self-help. Do not unilaterally lock out a co-founder, pull code, restrict access, or divert revenue without proper authority.
• Don’t retaliate. Avoid sudden demotions, terminations, or pay changes as punishment. Follow contracts and standard procedures.
• Don’t misuse company or competitor information. Respect IP and confidentiality boundaries.
• Don’t communicate carelessly. Assume messages may become evidence. Be factual, respectful, and professional. Avoid company conversations with family or friends who are not affiliated with the company, and do not post company information on personal social media accounts.

Potential Remedies

• Injunctions. Court orders to maintain the status quo, restore access to information, prevent IP misuse, or stop unauthorized actions by co-founders, directors, or officers.
• Buyouts. One party purchases the other’s equity based on negotiated or determined valuation, sometimes with earnouts or payment schedules.
• Accounting. Formal review and reconciliation of financials, reimbursements, and loans.
• Declaratory relief. A court or arbitrator clarifies rights and obligations under governance documents or contracts.
• Dissolution. As a last resort, winding up the company under governing documents and applicable law, often a successful strategy.
• Pre-litigation actions. These include demand letters, evidence preservation, potential mediation, and, if unresolved, preparing court claims or initiating arbitration.

Act Early

If a founder dispute is imminent, act quickly and strategically. As can be seen from the above considerations, founder disputes can get complex fast. Be proactive, gather documents, preserve data, pause unilateral changes, and involve counsel before you lose ground or positions harden. Determine a course of action and be first to act, so that the other side does not dictate the forum or manner of the legal action.

Every founder dispute is unique. For tailored guidance, contact the attorneys at Pietragallo for a consultation. We have been there and can guide clients through traditional, digital, and conclusive business disputes.

Matthew R. Barnes can be reached by email at mrb@pietragallo.com or by phone at 412-263-1842.