One of the lessons I learned as a founder and CEO of Makers was to get good legal advice. It’s far preferable to prevent problems from arising by consulting with lawyers early than to fix them later: you’ll be speaking to the same lawyers, except it’ll be more difficult and more expensive.
Yet, many founder CEOs who stepped down don’t seem to take legal aspects of this transition seriously enough. In this conversation, Gretchen Lennon from Lennon Legal and I discuss the main points that all founders considering leaving their startup should be aware of.
There are two overarching points I hope founders will take from this conversation.
One is that your board is on your side only as long as you’re the CEO. When you start negotiating stepping down, they will be on the opposite side of the table, negotiating for the company. To some founders, this comes as a surprise because the investors have always been in their corner. It’s not wrong and it’s not personal: it’s just a change of roles that founders should expect.
The other one is that there’s more complexity than many founders expect before the start thinking it through: shares, options, tax, restrictive covenants, consent rights, settlement agreement, etc. etc. Founders need to understand their legal position before starting the negotiation with the board because this will shape their negotiation strategy.
(If there’s a founder who needs to watch this episode, send them the link!)
Timestamps
(Chapters are clickable on YouTube)
00:00 Introduction
02:31 Hypothetical CEO Resignation
05:06 Unfair Dismissal
08:12 Shares, Options and Taxes
16:36 Getting Legal and Tax Advice
18:37 Negotiating Settlement Agreements
21:59 Post-Termination Restrictions
26:42 Staying with the Business as an ex-CEO
32:16 Rebalancing the Cap Table
37:21 Anti-embarrassment Provisions
40:18 Renegotiating the SHA and the Articles
42:58 The Reasons to Start Preparing Early
47:15 LennonLegal.com
48:03 Final Thoughts and Key Takeaways
E05 — Legal Aspects of CEO Succession with Gretchen Lennon