Founder and equity disputes

I am Sergei Tokmakov, a California attorney (CA Bar #279869). Co-founder disputes, equity-vesting fights, and operating-agreement violations are some of the most consequential and most personal matters a founder runs into. The same paper that funded the company also defines who keeps what when a co-founder leaves or is asked to leave. This page is written for founders, departing or remaining, and for investors and operators who need a written, fact-based read on where the leverage actually sits before a meeting or a demand letter goes out.

Matters I handle in this area

• Co-founder breakups. Negotiating a clean exit when the founding team has reached the point of separation. Vesting cliff acceleration, reverse-vesting under the stock purchase agreement, IP assignment confirmation, and post-departure non-compete and non-solicit posture under California law.
• Equity-vesting disputes. Departing founders contesting an alleged "termination for cause" that triggered forfeiture, or remaining founders contesting that vesting should have stopped earlier. Reading the actual stock purchase agreement and the actual board minutes.
• LLC operating agreement violations. Distributions paid out of order, manager actions taken without required member approval, transfer restrictions ignored, and required books-and-records access denied.
• Breach of fiduciary duty claims. Self-dealing transactions, diversion of corporate opportunity, undisclosed compensation, and the recurring fact patterns inside Cal. Corp. Code section 17704.09 (LLC) and California Corporations Code section 309 (director) duty obligations.
• Buyout structures. Tax-aware structures for founder buyouts, including stock redemption versus cross-purchase, installment payouts, security interest in the buyer's shares, and the role of a covenant not to sue.
• Section 220 / Cal. Corp. Code section 1601 books-and-records demands. Information demands that often precede a litigation or a buyout negotiation. Drafting the demand and responding to it.
• Minority-member oppression. Squeeze-outs, dilutive issuances, and termination of minority employment with the apparent purpose of buying the minority's equity at depressed value.

What I tell first-time clients before we start

Founder disputes always look winnable from one side and unwinnable from the other. The truth is usually that both sides have a real claim and a real exposure, and the leverage is in (a) what the paper actually says, (b) what the email and Slack record actually shows, and (c) which side is better positioned to wait. I will tell you where your weak point is before I draft anything. That is the work you are paying for.

Anonymized case studies

Controlling California statutes and federal authority

Below are the rules I most often invoke. Delaware-incorporated entities are common here; for those I work alongside Delaware counsel when needed for litigation, but I can read a Delaware operating or stockholder agreement and tell you what it does.

• Cal. Corp. Code section 17704.09, fiduciary duties of LLC managers and members.
• Cal. Corp. Code section 17704.10, member access to books and records.
• Cal. Corp. Code sections 17707.01 to 17707.10, dissolution and judicial dissolution of LLCs.
• Cal. Corp. Code section 309, fiduciary duties of corporate directors.
• Cal. Corp. Code section 1601, shareholder access to books and records.
• Cal. Corp. Code section 1800, judicial dissolution of corporations on grounds including deadlock and persistent unfairness.
• Cal. Bus. and Prof. Code section 16600, the California non-compete prohibition and the 2024 amendments at sections 16600.1 and 16600.5.
• Cal. Lab. Code section 925, restrictions on choice-of-law and choice-of-forum clauses adverse to California-resident employees.
• Cal. Civ. Code section 1670.5, unconscionable contracts; Armendariz v. Foundation Health Psychcare Servs., 24 Cal.4th 83 (2000), as a backstop on one-sided arbitration in equity disputes embedded in employment paper.
• Delaware General Corporation Law (DGCL), particularly Sections 144 (interested director transactions), 220 (books and records), and 281 (dissolution claims), where the entity is Delaware-incorporated.
• Delaware case law: Cede & Co. v. Technicolor, 634 A.2d 345 (Del. 1993); Aronson v. Lewis, 473 A.2d 805 (Del. 1984); Lyondell Chemical v. Ryan, 970 A.2d 235 (Del. 2009), on the duty of loyalty and the entire fairness standard.
• California case law: Jones v. H.F. Ahmanson & Co., 1 Cal.3d 93 (1969), on majority shareholder duties; Marsh's California Corporation Law citations to current authority on member oppression and freeze-outs.

Sample claims I assert in founder disputes

• Breach of operating or stockholders agreement, citing the specific clause violated and the recoverable remedy (accelerated vesting, return of distributions, or specific performance).
• Breach of fiduciary duty (duty of care or duty of loyalty), with a parallel pleading for the entire-fairness standard if a self-interested transaction is involved.
• Breach of the implied covenant of good faith and fair dealing.
• Constructive trust or restitution over distributions taken in violation of the waterfall.
• Declaratory relief over disputed vesting status, cause definition, or transfer restrictions.
• Injunctive relief, including preliminary injunctive relief in narrow contexts.
• Books-and-records demand under Cal. Corp. Code section 17704.10, section 1601, or DGCL section 220.
• Judicial dissolution where the relationship has broken to a point that justifies it.

The first 14 days of a founder dispute, written out

Founder disputes usually have a moment where the relationship breaks. The first two weeks after that moment decide how expensive the next twelve months will be. The playbook I work through with a client in those first 14 days, roughly in order:

1. Stop creating new evidence that will be read back to you. Slack messages, Signal threads, and email replies sent while you are angry become exhibits. Pause the high-velocity written communication until you have read the operating agreement, the stock purchase agreement, and the employment file.
2. Pull the documents. Operating agreement, stock purchase or restricted-stock purchase agreement, any side letter, the cap table, the most recent board minutes, your offer letter or employment agreement, and the company's IP-assignment paper. If you do not have all of them, request them in writing.
3. Read your own paper carefully. Find the vesting schedule, the cause definition, the transfer restrictions, the right of first refusal, the buy-sell or repurchase right, and the dispute-resolution clause. Note where each one ends and where the other side's paper begins.
4. Map the timeline. Date of formation, date of stock issuance, dates of any vesting milestone, date of the dispute, and date of any termination notice. Founders consistently get the cliff date wrong.
5. Run a section 17704.10 or section 1601 books-and-records demand if you are the minority or the departing side. The demand puts the other side on notice and forces a paper trail. Done correctly, the demand also preserves a record of the company's response or non-response, which is useful later.
6. Talk to me, talk to a tax attorney, and decide whether you need a Delaware litigator. Most founder disputes settle. A small percentage do not. The decision about whether to engage a Delaware Chancery litigator now or later depends on the entity, the dispute, and the size of the equity at issue. I will tell you which posture you are in.
7. Write the one-paragraph internal position statement. Before any letter goes to the other side, the client and I write a short, honest statement of what the client wants, what the client is willing to accept, and what the client will not give up. The next twelve months go better if the client has this written down on day five.

Why "we are still friends" delays the analysis but does not change the outcome

Most founder disputes start with one of the founders saying, "we will work it out, we are still friends." That is sometimes true and sometimes a coping statement. The friendship between co-founders is real, the legal relationship is real, and the two are not the same. The legal analysis is the same whether the founders are still on speaking terms or not. Delaying the analysis until the friendship has broken further usually narrows the menu of available outcomes. Doing the analysis early, quietly, and without sending anything to the other side, preserves the maximum number of paths.

Typical fee ranges

Frequent questions on founder and equity disputes

If the operating agreement is silent on something, what controls? California's LLC default rules under the Revised Uniform Limited Liability Company Act, particularly Cal. Corp. Code section 17704.09 and the related sections. For Delaware LLCs, the Delaware LLC Act's default rules. The defaults are sometimes more founder-friendly than the parties remember, and sometimes less. I read the operating agreement against the defaults so the client knows which way the gap cuts.

Can I take a holdback or use self-help against a departing co-founder? Almost never. The contractual repurchase or reverse-vesting mechanism is the path. Self-help in founder disputes (unilateral repurchase, IP holdback, removal from the cap table without process) creates breach-of-fiduciary-duty exposure that almost always outweighs the short-term benefit.

Is the dispute under California or Delaware law? The entity's state of formation controls internal governance. So a Delaware-formed company with California operations applies Delaware law to internal-governance disputes (who owes what fiduciary duty to whom), even if California law applies to the employment side of the same dispute. Two parallel legal regimes can apply to a single set of facts. I lay this out on day one.

What if my co-founder is also my spouse? California is a community property state. Equity acquired during marriage is generally community property unless a clear writing says otherwise. A spousal co-founder dispute layers family law on top of corporate and employment law. I refer the family-law analysis to a family law attorney; the corporate side stays with me.

Should I file or get filed against? First-to-file matters for forum selection in many fact patterns, but a frivolous or premature filing is worse than no filing. I will tell you, in writing, whether the realistic strategic posture is to file, to wait, or to invite filing.

When to engage me, when to handle it internally, when to go to a large firm

Engage me when the dispute is between two to four founders or members, the company is at seed or Series A stage, the equity at stake is in the low to mid seven figures, and you want a clear, fact-grounded read on your position plus a written demand or buyout proposal. Founders who want a calm, written framing before a meeting with co-founders or investors are the natural fit.

Handle it internally when the parties are still talking constructively and the disagreement is structural (e.g., which way to grow, how to allocate budget) rather than legal. A legal letter at that stage often poisons the room. Get aligned on the business question first, then come back if it does not resolve.

Go to a large firm when the dispute has escalated into a derivative or class-action lawsuit, when the company has been served with a Section 220 demand from a sophisticated stockholder, or when you are at a stage where a Delaware Chancery filing is realistic. Wilson Sonsini, Cooley, and Fenwick run these matters every week and have the bench depth for an emergency motion calendar. Use them for the litigation; use me for the contract reads and the founder-to-founder framing that precedes it.