Startup Law
How much equity should I give a co-founder, and do we need vesting?
There is no universal formula for splitting founder equity, but a fair split weighs each founder's contribution, time commitment, and risk. The market-standard vesting schedule is four years with a one-year cliff — no shares vest until the first anniversary, then they vest monthly. Vesting aligns the team and lets the company reclaim unvested shares if a founder leaves early. Pair the grant with a founder stock purchase agreement and an 83(b) election.
What does the tax code have to do with founder equity?
Founder stock subject to vesting is 'property transferred for services' under Internal Revenue Code Section 83, so each founder should file an 83(b) election within 30 days to be taxed at the low grant-date value.
See the 83(b) page for how and why.
How do we decide the equity split?
Weigh who had the idea, who brings irreplaceable expertise, who is full-time, and who contributed capital — then document the rationale and have every founder sign an IP assignment.
Equal splits are common when founders are truly equal, but unequal splits can reflect different roles; what matters legally is documentation and IP assignment.
What is a standard vesting schedule?
Four-year vesting with a one-year cliff: nothing vests for the first 12 months, then 25% vests at the cliff and the rest vests monthly over the next 36 months.
This protects the company if a co-founder leaves after a few months. Acceleration on a sale (single- or double-trigger) can be negotiated, but investors often push back.
What about IP assignment for founders?
Each founder must sign a confidential information and invention assignment agreement transferring to the company all IP they create for the business; without it, the founder — not the company — owns that work.
This is one of the most common and most damaging diligence findings. See the IP page.
Should founders use restricted stock or stock options?
Founders typically buy restricted common stock directly, which lets them file an 83(b) election and start the capital-gains and QSBS clocks; options are usually reserved for employees and advisors.
See the entity page for QSBS and the hiring page for options.
Talk to a startup attorney
Bringing on a co-founder or issuing founder stock? Get the split, the vesting, and the IP assignment right before it becomes a dispute. Book a 5-minute triage: (773) 777-9888.
Frequently asked questions
What if we don't agree on the equity split?
A neutral startup lawyer or mediator can help structure a split both founders can live with. Delaying incorporation over the split increases the risk of IP-ownership disputes and lost momentum, so resolve it and document it early.
Can vesting accelerate if the company is sold?
Yes — this is called acceleration. Single-trigger (on acquisition) and double-trigger (acquisition plus termination) provisions can be negotiated into founder agreements, though investors often resist single-trigger acceleration. The terms should be set when the equity is issued.
What is a founder stock purchase agreement?
It is the contract that documents the sale of restricted common stock to a founder — including the vesting schedule, the company's repurchase right on unvested shares, and the nominal purchase price. It sets the foundation for both taxation and ownership.
Do we need to value the company for the equity grant?
Yes — the stock's fair market value on the grant date determines the 83(b) tax amount. For a brand-new startup with no assets, that value is often nominal, but you should have a board resolution establishing it.
What happens if a co-founder leaves before the cliff?
Typically the company can repurchase all of that founder's unvested shares at the original purchase price, so the departing founder forfeits the unvested equity and the remaining team is protected. That is the entire point of the cliff.
Can we change our vesting schedule later?
It is possible, but amending equity terms can trigger tax issues under Section 409A if the change is treated as a new grant. Talk to counsel before modifying a vesting schedule.
More in Startup Law
- Startup Law — overview and all topics
- LLC or Delaware C-Corp for a Startup?
- The 83(b) Election
- SAFE vs Convertible Note
- Corporate Transparency Act / BOI Reporting (2026 Status)
- Who Owns Your Startup's IP (and How to Make Sure It's the Company)
- Can I Advertise My Raise? Rule 506(b) vs 506(c)
- What Is a 409A Valuation and When Does My Startup Need One?
- Can I Pay My First Hire as a 1099 Contractor?
- Does Registering My LLC Protect My Brand Name? (Startup Trademarks)