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Exploitation of Business Opportunity of a Startup Company by its Founder
In a recent court judgment of the Economic Department of the Tel Aviv-Jaffa District Court, it was determined that the obligation of an officer (founder) and controlling shareholder to refrain from competition and exploitation of business opportunities extends even after a company ceases its business operations. The case involved two founders of a startup that operated for only a few months before discontinuing its activities. No founders’ agreement or separation agreement was signed, and the joint company was not dissolved after cease of business. After a few months, one of the founders established a new company in the same field, leveraging the reputation and experience of the joint company. Even though the new company did not use the technology developed by the joint company, it was determined that the founder breached his duty of loyalty as an officer and controlling shareholder towards the other founder and the joint company, as well as his duty not to deprive the rights of his former partner.
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