Splitting equity is one of the first decisions co-founders make and one of the most consequential. Get it wrong and it becomes a source of resentment, negotiation leverage, or outright litigation when things go well (or badly). The goal isn't a formula — it's a documented agreement that reflects what each founder actually contributed and what they're committing to going forward.
Why This Needs to Be in Writing
A verbal equity agreement is not enforceable in any useful way. When a company raises funding, gets acquired, or a co-founder leaves, the cap table is what matters — and it reflects only what was documented and issued. If you haven't formalized the split, you don't have a split.
You need:
- A written Founders' Agreement (or a Co-Founder Agreement) stating the equity percentages
- Stock certificates or unit certificates reflecting the actual issuance
- Vesting agreements governing when equity is earned
How to Think About the Split
There's no universal formula. Equity reflects three things: past contribution, future commitment, and risk.
Past contribution includes the original idea, early capital invested, work done before incorporation, intellectual property brought in, and relationships or customers already in place.
Future commitment is usually the bigger factor. If two founders are both going full-time with equal roles and equal risk from this point forward, that's a strong argument for equal splits. If one founder is part-time, that changes the equation.
Risk reflects what each person is giving up — salary, career trajectory, savings. A founder leaving a $400k job takes more risk than one who was between jobs.
Common Splits
50/50: Works well when two founders are genuinely equal contributors with equal commitment. It requires a tiebreaker mechanism in the operating agreement or bylaws (usually the CEO has final say on operational decisions). Don't split 50/50 just to avoid the conversation.
60/40: Reflects a meaningful but not dominant difference — often used when one founder had the idea earlier, has more relevant domain expertise, or took on early risk before the other joined.
70/30 or more skewed: Appropriate when one founder is clearly the primary driver and the other is a part-time or execution-focused co-founder. Be honest about this rather than inflating the minority co-founder's stake to feel fair.
Vesting: Non-Negotiable
Issuing equity without vesting is a mistake almost every first-time founder regrets. If a co-founder leaves after 6 months and owns 30% of your company outright, you have a serious problem.
Standard vesting: 4 years with a 1-year cliff.
- The cliff means nothing vests until the 1-year mark (protecting the company if someone leaves early)
- After the cliff, shares vest monthly over the remaining 3 years (36 more monthly installments)
- Total vesting period: 4 years
For founders (not just employees), it's also common to give credit for time already worked pre-incorporation. If you've been building for 6 months before incorporating, you might negotiate 6 months of credit toward your cliff.
Double-Trigger Acceleration
Most founders also negotiate double-trigger acceleration: if the company is acquired AND the founder is terminated (or their role materially changes), all remaining unvested shares vest immediately. This protects you from an acquirer firing you the day after close and keeping your unvested equity.
The 83(b) Election
If your equity is subject to a vesting schedule, you must file an 83(b) election with the IRS within 30 days of the grant date. This is not optional and the deadline is hard.
The 83(b) election lets you pay taxes on the value of your equity at grant time (usually near zero for a new company) rather than at each vesting event. Without it, you'll owe income tax each time shares vest — at whatever the fair market value is then, which could be substantial if the company has grown.
Your lawyer will prepare this. Don't skip it, and don't miss the 30-day window.
What to Put in the Document
A founder equity agreement should cover:
- Names and roles of each founder
- Entity name and jurisdiction
- Equity percentages and class of shares or units
- Vesting schedule for each founder (including any cliff and any credit for prior work)
- IP assignment: all IP each founder created related to the business is assigned to the company — this is critical for future due diligence
- Full-time commitment requirement (or explicit carve-out if part-time)
- Non-compete and non-solicitation clauses during employment
- Buyback rights: the company's right to repurchase unvested shares if a founder leaves
- Drag-along rights: majority can require minority to vote in favor of a sale
- Right of first refusal: founder must offer shares to the company before selling to a third party
When to Bring in a Lawyer
You don't need a lawyer to have the equity conversation — that's on you. But you do need a lawyer to draft the actual agreements. A startup attorney can prepare a complete founders' package (stock purchase agreements, IP assignment, vesting schedule, bylaws) for $1,500–$4,000.
Don't use a template from the internet for this. The language in IP assignment clauses and buyback provisions has been litigated, and errors here are expensive to unwind later.
One More Thing: Revisit It Before You Raise
If your equity split was set informally at the start and you're now approaching a seed round, fix it before investors see the cap table. Investors will ask about vesting, IP assignment, and whether all founders have proper documentation. Gaps here slow down or kill deals.
Founder Kit's entity formation guide includes the cap table basics and flags when you should bring in outside counsel for the equity documentation.