What to agree with your co-founder before you incorporate

If you're about to incorporate with a co-founder, the paperwork will ask you to decide things you may have only discussed loosely: who owns how much, who sits on the board, and who runs the company day to day. The documents will record whatever you put in them. They can't settle disagreements you haven't had yet, and the ones you skip now tend to come back at the worst time, when someone wants to leave or an investor is reading the files.

Before incorporating, co-founders should agree on the equity split, vesting and what happens if someone leaves, roles and decision-making, who sits on the board and how ties are broken, who owns the IP each person has already built, each person's time commitment, how money spent before incorporation is treated, and when founders will be paid. Most of these end up in the stock purchase agreements, board consents, and IP assignments signed right after incorporation, so agreeing first means the documents reflect a real decision rather than a placeholder.

Below is what each conversation should cover and where the answer ends up.

The equity split is the first decision, and the hardest to revisit

Agreeing on how the founder shares divide is easiest before anyone holds stock. After the shares are issued, changing the split means transfers or new issuances between founders, which bring tax and accounting complications.

Base it on what each person brings from here on. Ideas and early work matter, but the split should mainly reflect each founder's expected contribution over the next several years: role, time, and the risk each person is taking.

Decide whether the split is equal. An even split between two founders is common, but it can create deadlock if both sit on the board and disagree. Some teams give one founder a slightly larger stake for that reason. Northwind Labs' founders, Maya and Daniel, split 4,050,000 and 3,950,000 shares for exactly this purpose.

Leave room for people not yet in the room. If you expect to bring in another co-founder, decide now whether to issue fewer founder shares at formation so new shares can be issued later without a charter amendment.

Agree on shares, not only percentages. Percentages change as the company issues equity. A share count doesn't.

Vesting decides what happens if someone leaves

Vesting is the protection both founders get if the other one leaves. The company can buy back a departing founder's unvested shares, usually at the original price.

Schedule. Four years with a one-year cliff is the standard and what investors expect: nothing vests in the first year, 25% vests at the one-year mark, and the rest vests monthly.

Credit for past work. If one or both of you have worked on the company for months already, decide whether that time counts toward vesting, by backdating the vesting start date or vesting a portion immediately.

Acceleration on a sale. Decide whether vesting speeds up if the company is acquired. Double-trigger acceleration, which requires both a sale and the founder's termination, is more common than single-trigger.

Departures. Talk through what happens if one founder wants to leave, stops contributing, or is asked to step back. The repurchase right handles the shares. The conversation handles the expectations.

These terms go into each founder's restricted stock purchase agreement.

Roles and decision-making should be written down

Titles and responsibilities. Decide who is CEO and what each founder owns, for example product, engineering, sales, or fundraising. The CEO usually signs on the company's behalf and is the investors' main contact.

Which decisions need both of you. Agree on which decisions either founder can make alone and which need agreement, such as hiring, spending above a set amount, raising money, or selling the company.

How disagreements get resolved. Decide in advance what happens when you disagree on something that needs both of you. It might be the CEO's call on day-to-day matters, a trusted advisor, or the board.

Officer appointments are made in the initial board consent. The rest is usually captured in a short written founder agreement or memo, which isn't a legal substitute for the formation documents but keeps everyone working from the same understanding.

The board composition sets how deadlocks are broken

At formation, the board is usually the founders. Its decisions, such as approving share issuances, option grants, and fundraising, need a majority or, when acting by written consent, every director.

Two founders, two seats. If both sit on a two-person board and disagree, the board cannot act. Some teams start with a single-founder board, or plan for a third seat, often filled by an investor or independent director later.

Odd numbers break ties. A three-person board can always reach a majority.

Changes after a priced round. Investors often take a board seat in a priced round. Agreeing now on how founder seats are allocated makes that negotiation easier.

The initial directors are named in the certificate of incorporation or appointed by the incorporator right after filing.

IP has to belong to the company, including what was built before

Code, designs, domain names, and other work created before incorporation belong to the founder who made them until they are assigned to the company.

List what each founder is bringing. Agree on what pre-incorporation work will be assigned to the company, and make sure each founder is willing to assign it.

Check for former employer claims. A founder who built something while employed elsewhere should check their employment agreement. Some employers claim ownership of inventions created during employment, especially when they relate to the employer's business or used its equipment. State laws, such as California's, limit some of these claims, but investors will want the question answered.

Agree on future IP. Every founder signs an invention assignment agreement covering what they create for the company going forward.

Pre-incorporation IP is assigned in the stock purchase agreement or a separate technology assignment.

Time commitment and outside work should be explicit

Full-time or not. Decide whether every founder is full-time from day one, and if not, when each will be. Unequal commitment is one of the most common sources of co-founder conflict, and it should be reflected in the equity split.

Other jobs and projects. Agree on whether either founder can keep a job, consult, or run side projects, and how conflicts of interest are handled.

Money spent before incorporation needs a decision

Founders often pay for domains, software, legal fees, or travel before the company exists.

Reimbursement or contribution. Decide whether those expenses will be reimbursed by the company once it has funds, treated as a loan, or simply absorbed. Keep the receipts either way.

Unequal cash contributions. If one founder is putting in significantly more money, decide whether that is a loan, a payment for additional shares, or part of the founder split. Mixing cash contributions into the founder split without discussing it creates resentment later.

Founder pay should be agreed before money arrives

When founders get paid. Agree on whether founders take a salary before the first fundraise, after it, or only after a revenue milestone.

Equal or different pay. Decide whether pay will be equal or reflect personal circumstances. Investors generally expect modest founder salaries in early rounds.

The bottom line

Incorporation turns a co-founder relationship into a set of legal documents: share counts, vesting terms, board seats, and IP assignments. Those documents are only as good as the agreement behind them. Settling the split, vesting, roles, board, IP, time commitment, early expenses, and pay before filing means each document records a decision both founders made deliberately. These conversations are easiest when nothing is at stake yet, and they are the ones investors and acquirers will look for evidence of later.

Frequently asked questions

How should co-founders split equity?

Based mainly on what each founder will contribute from here on, including role, time commitment, and risk, not only on who had the idea. Equal splits are common, but some teams give one founder a slightly larger stake to avoid board deadlock.

Do co-founders need vesting?

Yes, in most cases. Four-year vesting with a one-year cliff protects each founder if the other leaves early, because the company can buy back unvested shares. Investors also expect founder shares to vest.

What is a founder agreement?

A founder agreement is a written record of what co-founders have agreed on roles, decision-making, time commitment, and how they will handle disagreements. The legally binding terms, such as shares and vesting, are set in the stock purchase agreements and board consents.

Who owns code written before the company was incorporated?

The founder who wrote it, until it is assigned to the company. Pre-incorporation IP is usually assigned in the stock purchase agreement or a separate technology assignment, and investors check for it in diligence.

What happens if two co-founders on the board disagree?

A two-person board that disagrees cannot act, because decisions need a majority or, by written consent, every director. Teams avoid this with a single-founder board, an odd number of directors, or an agreed way to resolve disputes.

Should co-founders be reimbursed for expenses paid before incorporation?

They can be, if the founders agree. Expenses can be reimbursed once the company has funds, treated as a loan, or absorbed. The decision and the receipts should be recorded either way.