You have found your co-founders. How should you split ownership in the company?

22 February 2025

Congratulations, you have found someone who wants to be your partner to work on your business idea. You are now looking to register the company together. Here are what you should consider.

Not a 50/50 equity split

You think you should give your partner an equal ownership of the company. Bad idea! A 50/50 ownership means each of you will have equal voting rights in the company. What happens when you have a conflict that cannot be resolved, and neither of you are willing to compromise? I have seen many startups being forced to shut down or co-founders taking each other to court because of this.

Even when you have 3 or 4 co-founders, you should not split equity equally. What you could do instead is to assign equity based on responsibilities, competencies and experience. In general, I think the CEO who represents the company in front of customers and investors should have more equities.

A method you can use to split equity is using the founder’s pie. Here is a basic method.

If you want a more thorough evaluation, use this Founder’s Pie template.

Sit down with your co-founders, discuss what needs to be done in order to grow and scale your business, and divide tasks and responsibilities among each other.

Vesting schedule

Vesting schedule means you will only get your amount of equity after a period of time. All co-founders should have a vesting schedule to ensure they stay and contribute to the company. You do not want to end up in a situation in which you have given someone 49% of the company, and the person quits after one year. A vesting schedule in the startup’s world is normally four years, but I personally think it should be even longer, since it takes at least 5-7 years for many startups to reach breakeven, fully grow and scale. For deep-tech startups that require a lot of research, it may even take longer to get products out in the market.

How it works:

Let’s say you agree to give your CTO 25% ownership of the company with a vesting period of five years.This means your CTO gets 5% in the first year, and 25% only after five years. If the CTO leaves after the first year, the CTO only owns 5% of the company.

In addition to vesting, you should have specific metrics and milestones each co-founder should meet before they are given equity, and terms to allow you to buy back equity if needed.

What if you establish the company together from the start? You should have a co-founder agreement that requires all the co-founders to stay in the company for a certain period of time and meet certain metrics. If not, their equity will be assigned to other co-founders.

For example, you decide to start a business with your friend and split 51/49. You have 51% ownership while your friend has 49%. After a year, you haven’t been able to find any customers and the business has zero revenue or funding. Your friend is no longer motivated and wants to look for a full-time job. Since you had previously agreed that equity could only be kept if the business makes money and your friend stays for at least five years, your friend has to give 49% to you upon leaving the company.

Co-founder agreement

Do sign a co-founder agreement when you decide to work together with someone else. The agreement should at least have the following:

• Each founder’s role and responsibilities

• Equity split and vesting schedule

• Confidentiality: any information related to the company should be kept confidential

• Non-competing: the co-founders cannot work on businesses that compete directly with the company. Keep in mind that there is a specific law for non-competing clauses if someone is an employee of the company.

• Intellectual property rights (IPR): IPR should belong to the company and not any specific co-founder. If the company has not been registered yet, you should agree who would own the IPR. Usually it’s the one who comes up with the business idea.

Lexolve has legal templates that you could use. Check out the offer from Lexolve.