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Legal lessons from The Social Network

I went to see the film The Social Network at the weekend.  The film tells the story of the rise of Facebook, the relationship between co-founders Mark Zuckerberg and Eduardo Saverin, and the legal wranglings regarding ownership, shareholdings and intellectual property of the company.  Facebook is familiar to most of us, but it was interesting to learn about the lesser known goings on behind the scenes of the social networking site, in particular, the legal battles that ensued when the company became successful.

The film charts how Saverin, the moneyman and co-founder of the original site ‘The Facebook’, sued Zuckerberg after effectively being ousted from his position as CFO (Financial Director) when investors and venture capitalists bought into the company. According to the film, this diminished his share percentage from 34% to 0.03%.

Whilst the film places the blame quite firmly on Zuckerberg, painting him in a particularly bad light with regards his treatment of his former best friend, it must be said that Saverin was more than a little naïve – being so swept up by the runaway success of Facebook that he blindly signed a new shareholders agreement – without fully understanding its implications on his position.

You did feel for the ousted Saverin, but ultimately, some blame does need to be apportioned to him – his failure to read a contract properly led to him losing a 34% share in what is today a $25 billion company (Ouch!)

In today’s business world, where innovation is commonplace and everyone is seeking to get a piece of ‘the next big thing’ in the digital revolution, The Social Network brings home a sobering message.

Collaborations in business shouldn’t be avoided – on the contrary, partners and investors can undoubtedly bring new skills into a business and thus provide a stronger proposition. But when it comes to something as important as your share in the ownership of a company, seeking legal advice from an experienced company restructuring solicitor and having formal legal documents in place clearly setting out the position of each shareholder/partner are an absolute must.  Also, it goes without saying that you should always take time to read and understand any contract, and if you do not agree with the terms, seek independent legal advice in order to protect your position.  

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