How Should Equity Be Divided Among Founders?
Founders take a vision and turn it into reality, creating exceptional opportunities along the way. Businesses change over time, but all future triumphs can be circled back to the founders who got the idea off the ground in the first place.
Those early days of a company are vital in setting the stage for sustainable business relationships and success. Founding partners cannot afford to let the distribution of equity get in the way of progress. Our team understands how sensitive this can be and has helped teams execute a fair equity plan and want to help you get this right.
Start with equal distribution
The best base to start with is an equal distribution plan that distributes equity in the business flatly to founders. We are not saying this will or should be your final plan, but it makes sense to start there.
If you have two partners then start with a 50-50 split. If you have four partners then start with 25% split four ways. If all partners have contributed and will continue to contribute equally then an equal distribution may be the fairest conclusion.
Factor in founder contributions
Has one founder contributed more of their time, money, ideas, and skills than another? Your team may need to quantify these differences by way of a greater share of company equity. If someone was brought in late in the process it likely does not make sense to have them receive the same amount of equity as a founder who has been a part of this from day one.
If you decide to move forward with an unequal distribution, state and document the reasons. This could mean defining roles and titles among founders.
Consider the commitment
A founder who plans on being involved in the daily operations of the company, brings more ideas, and produces more results may be owed a greater share of the equity. Greater responsibility should produce more benefits than a founder who maintains an exclusively financial relationship with the company.
On the flip side of that is a partner who has made a more significant financial commitment to the company. One partner may be bringing more productivity to the table but relying almost entirely on the financial support of another. Defining what you value as a company and as a founder will be important. Does a larger financial commitment outweigh someone who is working harder to build the company’s future?
Go from founder to global influencer in your industry
Our team has experience taking founders from local to global. White Summers gets with founders early on in the process – the earlier the better – and ensures you have the legal support you need to succeed. We can help you ensure a fair split of equity and ensure thorough documentation of these important decisions. Contact our team early in your process and get the best legal advice founders can ask for.
By White Summers