How to Erase a CoFounder - Results May Vary

If you're planning to squeeze your minority partner off the cap table, here is precisely how NOT to do it. A field guide.

Sohail Prasad recently set out to erase his cofounder, Samvit Ramadurgam — a one-third owner of their company, Destiny XYZ. Want to try it yourself? Here's his method. Results may vary.

Step one: stack the board. Add two loyal allies days before the vote, and make sure they show no interest in doing a corporate board member's job — ask a question, test the price, protect the minority. (The court found both acted in bad faith)

Step two: cook the number. Have your law firm — not the company — hire the valuation firm, feed it your facts, skip real verification, then present the result as a fairness opinion — though its first page says, in writing, it is "not intended to be, and will not constitute, a fairness opinion." Value your partner's one-third stake at $710,000. Efficient.

Step three: run the "meeting." Convene the board on Zoom, camera off, drop the valuation into the chat, and give your partner fifteen minutes with it. He'll have questions; the outcome is already decided. Then have your new three-director majority — you and the two from Step one — approve it by Zoom chat. Three assenting votes of four. A facially valid board vote.

Step four: fire the mechanism you pre-loaded before the meeting began. A reverse split at 1,850,000-to-1 — steep enough to leave your cofounder with less than one share — so Section 155 of the DGCL lets you cash out his "fractional" sliver at that "fair value." Then, now the only name on the cap table, a forward split at one-to-1,850,000 restores your own holdings. He's gone; you're whole — filed minutes after adjournment.

Step five: mind the timing. Do it all just weeks before the fund it manages goes public — the milestone that will lift its value. Chef's kiss.

Here's how it went for Prasad. The Delaware Court of Chancery called it "glaringly egregious" and "unusually deplorable." When you stand on both sides of a deal that strips your partner's equity, the standard is entire fairness — fair price and fair process — and this had neither.

With the fund public and other deals stacked on top, rescission was impractical, so the court reached into Prasad's own shares, via a constructive trust, and restored Ramadurgam's one-third — then ordered the individual defendants (Prasad and his two friends) to pay his fees personally.

If you've been maneuvered out of a company you built, a technically compliant process isn't the end of the story. Delaware courts, like those in most other states, will still ask whether it was fair — and can order the wrongdoer to make full restitution even after the deal looks done.

And whether you're making a move against a co-owner or it's being made to you, the question isn't "is this technically compliant?" It's "is this fair, and will it survive a judge who's carefully examining what actually happened?" Ask before the meeting, not after.

ASK A QUESTION OR SCHEDULE A MEETING/CALL. 

Disclaimer: This article constitutes attorney advertising. Prior results do not guarantee a similar outcome. MGLS publishes this article for information purposes only. Nothing within is intended as legal advice.