The founder who types “can I fire my co-founder” into a search bar at eleven at night has usually already decided. The partner has stopped showing up, or has started a side project, or has simply become the person the rest of the team routes around. What the founder wants is permission. What the law gives them instead is an inventory: a list of everything their co-founder holds that is not a job, and none of it can be taken away with a termination letter.
The company is not unusual in reaching this point. Noam Wasserman's research at Harvard Business School, published in The Founder's Dilemmas, found that 65% of high-potential startups fail because of conflict among the co-founders — more than fail for lack of a market. The split you are contemplating is the ordinary way companies die, and doing it properly is what makes yours the exception.
Three hats, one termination letter
| Role your co-founder holds | How it ends | What a 50% holding changes |
|---|---|---|
| Employee (CEO, CTO, whatever the title) | Termination, with notice or pay in lieu under the Employment Standards Act and the common law, unless there is just cause | Nothing — but the board has to authorise it, and they sit on the board |
| Director | Ordinary resolution of shareholders (CBCA s. 109 / OBCA s. 122), or resignation | Everything. A 50% shareholder can block their own removal; the vote deadlocks |
| Shareholder | Sale, buy-out under a shareholder agreement, court order, or repurchase of unvested shares | Their shares are their property. Without a shareholder agreement there is no mechanism to take them |
Can you actually fire them as an employee?
Usually, yes, and this is the part founders overestimate the difficulty of. An employment relationship ends the way any employment relationship ends. Without just cause — and “we stopped getting along” is not cause, nor is underperformance without warnings — the company owes statutory minimums under the ESA and, unless a written contract limits it, reasonable notice at common law. For a founder-executive with several years in and a senior title, that can run to twelve months' pay or more; the Ontario courts treat 24 months as the practical ceiling for exceptional cases. Most co-founders never signed an employment agreement with the company at all, which means there is no termination clause and the common-law entitlement applies in full.
The procedural trap is who signs the letter. Officers are appointed and removed by the directors, and dismissal of a senior executive is a board decision. If the board is the two of you, a resolution to terminate your co-founder needs a majority of the directors present at a properly called meeting — and they are entitled to be present and to vote. A 1–1 board cannot pass anything. Founders who get around this by simply changing the passwords and cancelling the payroll have not terminated anyone; they have handed their co-founder the first exhibit in an oppression application.
Why you cannot remove them as a director
Directors are removed by ordinary resolution of the shareholders under section 109 of the CBCA and section 122 of the OBCA — a simple majority of the votes cast. At 50/50, the resolution fails on a tie. At 51/49 it passes, which is the single most consequential difference between the two cap tables and the reason a one-share edge is worth so much more than one percent. A director who cannot be removed keeps the statutory right to notice of every board meeting, access to the corporation's books, and a vote on every decision the board makes — including the decision to fire them, and every hiring, financing and budget decision after it.
This is the deadlock, and the corporate statutes offer a blunt way out: a court may order the corporation wound up under CBCA s. 214 or OBCA s. 207 where it is “just and equitable” to do so. Nobody wants that, which is exactly why the threat of it moves negotiations. We have written separately about resolving a shareholder deadlock without going to court; the short version is that the deadlock is a bargaining position, not a verdict.
The shares are the actual problem
A fired co-founder walks out the door with every share they own. Shares are property; employment is a contract. Nothing in the Canada Business Corporations Act lets a corporation take back issued shares because the holder stopped working, and a shareholder who no longer works in the business keeps every right the shares carry — to vote, to dividends, to financial statements, to a share of the proceeds when you sell. You will have a silent partner who owns half of everything you build from now on and contributes nothing to it, and any buyer or investor will ask about them before they ask about your product.
There are exactly three ways the shares move. The first is a shareholder agreement with a compulsory transfer clause — a provision that a founder who ceases to be employed must sell, at a formula price, often at a discount for a “bad leaver.” The second is reverse vesting, where the founder's shares were issued up front but subject to repurchase by the company at nominal value if they leave before the vesting period ends. The third is a negotiated buy-out, which is what happens in the absence of the first two, at a price the departing founder sets by how much trouble they are able to cause. If your shareholder agreement has no leaver provisions and the shares were not issued under a vesting agreement, you are in the third category, and you should know that before you send the letter.
The oppression remedy: where firing a co-owner goes wrong
Section 241 of the CBCA and section 248 of the OBCA let a court intervene where the corporation's conduct is oppressive or unfairly prejudicial to, or unfairly disregards the interests of, a shareholder. The Supreme Court in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 framed the test around the complainant's reasonable expectations, judged objectively against the nature of the corporation and the relationship between the parties.
In a two-founder company the expectations are obvious and the courts have said so for thirty years. Someone who put in their savings and three years of unpaid nights on the understanding that they would run the business alongside you had a reasonable expectation of continued employment and participation in management — not because employment is a shareholder right, but because in a closely held company the two were plainly part of the same bargain. The Ontario Court of Appeal in Naneff v. Con-Crete Holdings (1995) found oppression where a family company's founders cut a son out of management and employment while he kept his shares, and the remedy was a buy-out at fair value. The reverse is also settled: an ordinary employee with no shares cannot dress a wrongful dismissal up as oppression, as the Superior Court confirmed in Abbasbayli v. Fiera Foods, 2022 ONSC 1968. The line runs exactly through the cap table. Fire an employee and you owe notice. Fire a co-owner and you may owe them the business.
A court that finds oppression can order the corporation, or you personally, to buy the shares at a price it fixes; it can reinstate the director; it can set aside the termination; and in Wilson v. Alharayeri, 2017 SCC 39 the Supreme Court confirmed that a director who drove the oppressive conduct and benefited from it can be ordered to pay personally — roughly $650,000 in that case. The founder who fires a co-founder to increase their own stake is describing that case in the first person.
What to do this week, in order
Read the documents before you act on the feelings. The articles, the shareholder agreement if there is one, the subscription or vesting agreement the shares were issued under, and any employment agreement. Those four documents decide whether you are in a strong position or a weak one, and the answer is not intuitive: a founder with 60% and no shareholder agreement is often weaker than one with 40% and a good one.
Then separate the three conversations. The employment question — role, performance, notice — has a legal answer and a price. The board question is a governance question, and the honest answer may be that one of you has to accept a smaller board role in exchange for something else. The ownership question is a negotiation about value and it is where the money is: a clean buy-out, priced by a formula you both accept, paid over time out of the company's cash flow, is almost always cheaper than the alternative of two years of litigation while the business drifts. Most co-founder separations settle as a package — resignation as director and officer, a share purchase, a release, a non-disparagement clause, and a short consulting tail so the handover does not lose customers. Mediation gets there faster than lawyers' letters, and a mediated deal survives because both people wrote it.
And fix the paper for next time. Reverse vesting on founders' shares from day one, a shareholder agreement with leaver provisions and a valuation formula, and a board of three so a vote can be lost. None of that helps with the co-founder you have now. It is the reason the next one will be easier to part with — or, more often, the reason you never have to.
Common questions
Can I fire my co-founder if we each own 50%?
You can end their employment, subject to notice or pay in lieu and a valid board resolution. You cannot remove them as a director without a majority shareholder vote, which deadlocks at 50/50, and you cannot take their shares without a shareholder agreement or vesting terms that provide for it. Dismissing a 50% co-owner from the business also creates a strong oppression claim.
Does firing a co-founder take away their shares?
No. Shares are property and survive termination of employment. They move only under a compulsory transfer or leaver clause in a shareholder agreement, a reverse-vesting or repurchase right, a negotiated buy-out, or a court order.
How much notice does a fired co-founder get in Canada?
Without a written employment contract limiting it, a co-founder is entitled to the Employment Standards Act minimums plus common-law reasonable notice, which for a senior founder-executive with several years' service can be a year or more. Just cause requires serious misconduct, not a breakdown in the relationship.
What is the oppression remedy and does it apply to co-founders?
Under CBCA s. 241 and OBCA s. 248 a court can remedy conduct that is oppressive or unfairly prejudicial to a shareholder's reasonable expectations. In a closely held company a co-founder's expectation of continued involvement in management is usually reasonable, so pushing them out while they still hold shares is a classic oppression fact pattern. Remedies include a compelled buy-out at fair value and personal liability for the director responsible.
Can a 50% shareholder be removed as a director?
Only by an ordinary resolution of shareholders, which needs a majority of votes cast. A 50% holder can vote against their own removal and the resolution fails. The alternatives are resignation, a shareholder agreement that requires it on ceasing employment, or a court order in a deadlock or oppression case.
What is reverse vesting for founders?
Founders receive all their shares up front, but the company has the right to buy back the unvested portion at a nominal price if the founder leaves before a set period (commonly three to four years with a one-year cliff). It is the standard tool that lets a company recover most of a departing founder's equity without litigation.
What happens to a company with a 50/50 deadlock in Canada?
If the shareholders cannot agree and the shareholder agreement has no deadlock mechanism, either side can apply to court, which may order a buy-out or, as a last resort, wind the corporation up under CBCA s. 214 or OBCA s. 207 on just-and-equitable grounds. In practice the threat of a wind-up pushes most deadlocks into a negotiated buy-out or mediation.
Should I use a lawyer or a mediator to separate from my co-founder?
Both, in sequence. A lawyer tells you what your documents actually let you do and what the separation is worth. A mediator gets the two of you to a package — resignation, share purchase, release, handover — faster and more cheaply than exchanging demand letters, and the deal holds because both founders built it.