Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

A dispute at a California startup usually turns on one of four questions: who owns the company, who controls it, who owns what it built, and what the founders owe each other. This page covers those disputes at early-stage companies and what the law gives each side; it is not about forming a company or raising money. Kolmogorov Law, P.C. is a California business litigation firm in Irvine that represents businesses, owners, and investors in disputes, in court and in arbitration.

Call (909) 235-6116 or contact us online to discuss a dispute at your company.

Who owns the company when the founders signed nothing

No entity: the founders may already be partners

Two or more people who carry on a business for profit as co-owners form a partnership, whether or not they intend to. A person who receives a share of the profits is presumed to be a partner unless a listed exception applies. (Corp. Code, § 16202, subds. (a), (c)(3).) A partnership may be formed orally or inferred from the acts and declarations of the parties. (Weiner v. Fleischman (1991) 54 Cal.3d 476, 482-483.) Absent an agreement, each partner takes an equal share of the profits and has equal management rights. (Corp. Code, § 16401, subds. (b), (f).) Our page on accidental partnerships covers the proof and the exceptions.

An LLC with no operating agreement

An LLC is member-managed unless its articles state that it is manager-managed. In a member-managed company a majority of the members decides ordinary matters, and an act outside the ordinary course generally needs every member's consent. (Corp. Code, § 17704.07, subds. (a), (b)(3), (4).) Voting is not automatically one vote per member. Where neither the articles nor a written operating agreement has a voting provision, members vote in proportion to their interests in current profits. A majority of the members is defined by those interests unless the operating agreement says otherwise. (Corp. Code, §§ 17701.02, subd. (m), 17704.07, subds. (b)(2), (r)(1).) Distributions follow the value of each member's contributions as stated in the company's required records. (Corp. Code, § 17704.04, subd. (a).) See our page on LLCs with no operating agreement.

A corporation with founder stock and no vesting terms

Shares issued as the Corporations Code provides are treated as fully paid, and the holder generally owes nothing more for them. (Corp. Code, § 409, subd. (b).) Vesting is a contract term. Without a vesting schedule or repurchase agreement, a founder who stops working generally keeps the shares, and the practical path is a negotiated buyback. Our co-founder dispute page covers vesting, repurchase rights, and equity that was promised but never documented.

What founders, managers, and directors owe each other

Partners, LLC members, and LLC managers

Partners owe the partnership and each other duties of loyalty and care. Loyalty includes accounting for any benefit taken from the business or its property, not dealing with the partnership on behalf of an adverse party, and not competing with it before dissolution. The duty of care is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. (Corp. Code, § 16404, subds. (a)-(c).) Members of a member-managed LLC owe parallel duties. In a manager-managed LLC the managers owe them, and a member generally has no fiduciary duty solely by reason of being a member. (Corp. Code, § 17704.09, subds. (a)-(c), (f).)

Directors and controlling shareholders

A director must act in good faith and in a manner the director believes to be in the best interests of the corporation and its shareholders. The statute also requires the care, including reasonable inquiry, of an ordinarily prudent person in a like position. (Corp. Code, § 309, subd. (a).) Control carries its own duty. The California Supreme Court has said that majority shareholders may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority. (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108.) Our fiduciary duty guide explains how these claims are proved.

When a founder is pushed out or locked out

Losing the job is different from losing the shares

Unless the articles or bylaws say otherwise, corporate officers serve at the pleasure of the board, subject to any employment contract. (Corp. Code, § 312, subd. (b).) Directors may be removed without cause by a vote of the outstanding shares, but a director generally cannot be removed over votes that would be enough to elect that director under cumulative voting. (Corp. Code, § 303, subd. (a)(1).) Unless the agreement states or implies otherwise, a shareholder whose employment has ended remains a shareholder, with a shareholder's rights, until the shares are actually bought. (Stephenson v. Drever (1997) 16 Cal.4th 1167, 1174.) In an LLC, the default rule lets a majority of the members, counted by interests in current profits, remove a manager without cause, subject to any service contract. (Corp. Code, § 17704.07, subd. (c)(5).)

Inspection rights in a corporation

A shareholder may inspect the accounting books, records, and minutes on written demand, for a purpose reasonably related to the shareholder's interests. (Corp. Code, § 1601, subd. (a)(1).) A director's right is broader: every director has the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind. (Corp. Code, § 1602.) Courts have recognized narrow exceptions, such as privileged documents generated in defending the director's own damages suit against the corporation. If the corporation refuses a lawful demand, the superior court may enforce the right, and it may award a shareholder's expenses, including attorney fees, when the refusal was without justification. (Corp. Code, §§ 1603, subd. (a), 1604.) Our shareholder inspection rights page covers the demand.

Inspection rights in an LLC

Each LLC member and manager may, on reasonable request and for a purpose reasonably related to that person's interest, inspect and copy the records the company is required to keep. The court may award expenses, including attorney fees, if it finds the company's failure to comply was without justification. (Corp. Code, § 17704.10, subds. (b)(1), (g).) See our page for members locked out of an LLC.

Who owns the code, the product, and the name

Work done by employees

A work prepared by an employee within the scope of employment is a work made for hire, and the employer owns the copyright unless a signed writing says otherwise. (17 U.S.C. §§ 101, 201(b).) For inventions, an assignment clause in an employment agreement does not apply to an invention the employee developed entirely on personal time without the employer's equipment, supplies, facilities, or trade secret information. That protection is lost if the invention relates, when conceived or reduced to practice, to the employer's business or its actual or demonstrably anticipated research or development, or results from work done for the employer. (Lab. Code, § 2870, subd. (a).) The employee who claims the protection has the burden of proof. (Lab. Code, § 2872.) See our page on Labor Code section 2870.

Work done by contractors, or by a founder before the company existed

Paying for work does not by itself make the company its owner, because copyright vests initially in the author. (17 U.S.C. § 201(a).) A commissioned work is a work made for hire only if it falls in a category the statute lists and the parties say so in a signed writing. The list does not name software. (17 U.S.C. § 101.) Otherwise the company needs an assignment, and a transfer of copyright ownership, other than by operation of law, requires a writing signed by the owner or the owner's authorized agent. (17 U.S.C. § 204(a).) The same gap appears when a founder wrote the code before the company existed and never assigned it. Our page on contractors and work made for hire explains the test.

The name and the brand

Federal registration on the principal register is prima facie evidence of the owner's ownership of the mark. (15 U.S.C. § 1057(b).) Our page on who owns the trademark when partners split explains how ownership is decided when one founder registered the company's name personally.

When someone leaves with company information

Trade secrets

Source code, customer data, pricing, and plans can be trade secrets if they derive independent economic value from not being generally known and the company made reasonable efforts to keep them secret. (Civ. Code, § 3426.1, subd. (d).) Actual or threatened misappropriation may be enjoined. (Civ. Code, § 3426.2, subd. (a).) Our trade secret page covers the claim and the defenses.

Non-compete clauses

A non-compete clause in an employment agreement is generally void in California. A contract that restrains anyone from engaging in a lawful profession, trade, or business is void to that extent, and including such a clause in an employment contract is unlawful unless an exception applies. (Bus. & Prof. Code, §§ 16600, subd. (a), 16600.1, subd. (a).) A void contract is unenforceable regardless of where and when it was signed, and an employer that tries to enforce one commits a civil violation. (Bus. & Prof. Code, § 16600.5, subds. (a), (d).) One exception matters to founders: an owner who sells all of his or her ownership interest may agree with the buyer not to carry on a similar business in a specified area where the business has operated. The restriction lasts only while the buyer or the buyer's successor carries on a like business there. (Bus. & Prof. Code, § 16601.) Our non-compete guide has more.

Investors, deadlock, and the way out

Claims that an investor was misled

It is unlawful to offer or sell a security in California through a communication that includes an untrue statement of a material fact, or that leaves out a material fact needed to make the statements not misleading. (Corp. Code, § 25401.) The buyer may sue the seller for rescission, or for damages if the buyer no longer owns the security. The seller has a defense if it proves that the buyer knew the facts, or that it used reasonable care and did not know of the untruth or omission. (Corp. Code, § 25501.) The same sections reach a buyer's untrue statements to a seller, so a company that sold stock on an investor's false statements may have its own claim. An action must be brought within five years after the transaction or two years after discovery of the facts, whichever expires first. (Corp. Code, § 25506, subd. (b).) Our investor fraud page covers both sides.

Deadlock, dissolution, and the buyout option

A court may dissolve a corporation when its directors or shareholder factions are deadlocked in the ways the statute describes, and may dissolve an LLC when management is deadlocked or subject to internal dissension. (Corp. Code, §§ 1800, subd. (b)(2), (3), 17707.03, subd. (b)(4).) A dissolution suit gives the other side an option to buy. In a corporate case, the corporation or holders of 50 percent or more of the voting power may generally avoid dissolution by purchasing the plaintiffs' shares for cash at fair value. (Corp. Code, § 2000, subd. (a).) In an LLC case, the other members may purchase the moving members' interests at fair market value. (Corp. Code, § 17707.03, subd. (c)(1).) Our page on 50/50 deadlock explains how these cases run.

The first days of a dispute

Records to pull together

• The articles, the bylaws or operating agreement, and any founder agreement, signed or unsigned.
• The stock ledger or ownership table, the board consents, and any stock purchase or vesting agreement.
• Invention assignments, contractor agreements, and records of who controls the code repository and the domain.
• Bank statements, tax returns, investor documents, and messages about equity or a departure.

What to avoid

Do not delete anything, and turn off automatic deletion on messaging apps. In deciding what inferences to draw, the trier of fact may consider a party's willful suppression of evidence. (Evid. Code, § 413.) Avoid self-help with company accounts: changing a co-founder's passwords, moving money, or transferring the domain or the repository before any vote or court order tends to create claims against the person who did it.

When to call a litigator

Call when a co-founder disputes your ownership, when you are cut off from records or accounts, when a demand letter arrives, or before you remove someone. We review the documents, send or answer the demand, and file or defend the case in court or arbitration if it does not resolve.

Frequently asked questions

What does a startup lawyer do when founders are in a dispute?

A business litigator starts with the documents the founders signed and the default rules that apply where they signed nothing. The work is then advice on each side's rights and exposure, a written demand or a response to one, and negotiation of a separation or buyout. If that fails, the dispute goes to a California court or to arbitration.

My co-founder and I never signed an agreement. Who owns the startup?

It depends on the form of the business. With no entity, California may treat the co-owners of a for-profit business as partners who split profits equally. In an LLC, the Corporations Code supplies default rules on voting and distributions. In a corporation, ownership follows the shares actually issued, as shown by the stock records and board consents.

Can my co-founders remove me from a startup I helped build?

From a role, often yes. A California corporation's board can usually replace an officer, and under the default rule a majority of LLC members, counted by interests in current profits, can remove a manager. Ownership is separate. Your shares or membership interest generally remain yours unless an agreement gives the company a right to buy them back.

Does a startup own code written by a contractor or a co-founder?

Not automatically. Under the federal Copyright Act, the person who writes code owns the copyright unless the code is a work made for hire or was assigned in a signed writing. A freelance developer's code is usually not a work made for hire. A California startup in that position should get a written assignment.

Do the same rules apply to a startup in Los Angeles or San Diego?

Yes. The Corporations Code, the Labor Code sections on invention assignments, and the non-compete statutes are California law, and the Copyright Act is federal, so the substantive rules do not change by county. Kolmogorov Law, P.C. has one office, in Irvine. Call to ask whether we can take a matter in your county.

Talk to a California business litigation attorney about a startup dispute

If a dispute has started at your company, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located in Irvine, California.

This page provides general information about California and federal law and is not legal advice. Outcomes depend on the documents, the facts, and the court.