Split equity and sign a founder agreement

Why this step matters

Co-founder disputes are one of the most common reasons early startups fall apart. Most of them come down to equity, roles and what happens when someone stops contributing. Settling these questions in writing while everyone is optimistic is far easier than doing it after a fall-out, a job offer or an investor's term sheet.

Investors will also look at your cap table. A clean split with vesting and signed IP assignments signals a team that has thought ahead; a messy one can slow or stop a round.

How to do it

1. Talk about expectations first. Before numbers, agree on roles, time commitment (full-time or not, and from when), salaries, decision-making, how you will resolve deadlocks and what each person wants from the company in five years.
2. Agree the split. Consider who had the idea, who is doing the work now, who brings scarce skills, who is taking the larger financial risk and who will carry the company in the long run. Equal splits are fine when contributions are genuinely similar; they are a problem when used to avoid a difficult conversation. Many founders use a structured framework or calculator to anchor the discussion.
3. Put everyone on vesting. A common structure for founders and employees is four-year vesting with a one-year cliff: nothing vests in the first year, a quarter vests at the first anniversary, and the rest vests monthly or quarterly afterwards. Founders sometimes receive credit for time already worked. Vesting protects the remaining founders if someone leaves early.
4. Decide what happens when someone leaves. The company usually has the right to buy back unvested shares at the original price. Discuss whether acceleration applies on a sale of the company (single or double trigger) and keep it modest, because investors look at it closely.
5. Sign the documents. Typical documents are a stock purchase or share subscription agreement with vesting terms, an IP assignment and confidentiality agreement for each founder, and a founder or shareholders' agreement covering roles, decision-making, transfers and leavers. In the UK, vesting and leaver terms usually sit in the articles of association and a shareholders' agreement.
6. File the 83(b) election in the US. Founders who receive restricted stock subject to vesting usually file a Section 83(b) election with the IRS within 30 days of the transfer, and give a copy to the company. The IRS now offers an online route through Form 15620 in your IRS online account, and a properly drafted mailed election is still valid. The 30-day deadline is strict, so confirm the details with a tax adviser.
7. Set up a cap table. Record every share issued, the price, the vesting schedule and any options or convertible instruments. A spreadsheet works at first; cap table software helps once you add employees and investors.

What it costs and how long it takes

Online formation services and standard templates can cover simple founder documents at low cost. A startup lawyer reviewing or drafting a founder agreement is a larger expense that varies by country and firm. Expect one to two weeks, most of it spent on the conversations rather than the paperwork.

Free credits, perks and services that help

Several startup law firms publish free founder document templates, and some offer deferred or fixed-fee packages for early startups; compare options at /best/legal and /best/incorporation. Cap table and equity management tools often have free tiers for small teams and discounts through accelerators; see /perks and /accelerators. Solo founders adding a co-founder later can find guidance at /for/solo-founders.

Common mistakes

• No vesting. Without it, a co-founder who leaves after three months keeps their full stake, and the remaining team works for them.
• Verbal agreements. Memories differ. Write it down and sign it, even if the first version is short.
• Generous early grants to advisers. Advisers usually receive small option grants that vest over time, not founder-level equity.
• Missing the 83(b) window. In the US this can turn every vesting date into a taxable event on shares you cannot sell.
• Forgetting IP assignment. Code written before incorporation belongs to the person who wrote it until they assign it to the company.

Go deeper

When you are ready to issue options to your first hires, see the step Hire your first people, and compare payroll and equity tools at /best/payroll-hr.