Asking on behalf of a friend:

Friend is referred to as SX, had an idea to start a sign company and partnered with a friend let’s call him DX, that had the resources available to do a pilot of 5 signs which would cost approx 250-300K.

Our arrangement was we would do 50/50 class A ownership and he would bring to the table this funding.

DX as of late isn’t able any longer to put up the 300K or even 100K to put up a sign thus the terms of the agreement have changed he has no capital to put up. He also decided that he was done with the company and that he would sell his percentage to me for 30K which is the expenses he incurred this year. Then he decided later that he would like to stay aboard. The problem is there is now no equity available to motivate key players or find funding as DX still holds 37.5% and I hold 37.5%.

SX -> 37.5% DX -> 37.5% Strategic partner -> 25%

We basically have a company with no value, with greater than 60% of the equity locked up with partners that either didn’t bring to the table what was agreed upon, and now wants money from me in return to buy them out.

We are standing at a cross roads as a very fragile startup company and the question is if the terms of the original agreement have not been executed as planned,can one just to walk away at this point and do it on their own? Is that acceptable if I choose to go down this route? At this point in time I have the money to pay the full salary of my sales guy without a partner and am entertaining the idea of spinning up a new company and giving him a percentage given that he is the one driving the company forward.

What is the correct approach?