How to choose co-founders, split equity and protect the company with vesting.

A co-founder is not just a colleague; they are a long-term business partner with a share of the company. When co-founder relationships fail without clear agreements, the result is often a departed co-founder holding a large stake they no longer earn, a cap table investors will not touch and months of distraction. The fix is cheap if done early and expensive if done late.

Choosing a co-founder

• Complementary skills, shared values. You want different strengths (for example, product and engineering alongside sales and market knowledge) but the same view on ambition, risk, pace and ethics.
• Proof of working together. Run a real project together first: a customer discovery sprint, a prototype, a first sale. Watch how you handle disagreement and pressure.
• Commitment and circumstances. Talk openly about money, time, family and how long each of you can go without a market salary.
• Fewer is often better. Two or three co-founders is common. Each additional co-founder adds decision-making overhead.

Questions to answer before you incorporate

1. Who does what, and who has the final say in each area?
2. Who is chief executive, and how do you resolve deadlocks?
3. How much time does each person commit, and from when?
4. What happens if someone wants to leave, stops contributing or is asked to leave?
5. What salary does each take, and when does that change?
6. Who owns the IP created before incorporation, and how is it transferred to the company?

The before incorporation checklist covers the wider steps.

Splitting equity

There is no formula, but a fair split looks forward, not back. Weigh each person’s future contribution, role, commitment and risk more heavily than who had the idea. Equal splits are simple and common; unequal splits are fine when roles or commitment differ, as long as everyone agrees the reasoning. A useful test: would each of you still feel the split is fair in three years if the company is doing well? Use the cap table and dilution simulator to see how today’s split looks after future funding rounds and an option pool.

Vesting and leaver provisions

Vesting means founder shares are earned over time. A common convention is vesting over four years with a one-year cliff, so nothing vests if someone leaves in the first year. In UK companies, founder vesting is usually achieved through good leaver and bad leaver provisions in the articles or a shareholders’ agreement, which let the company or other shareholders buy back unvested shares when someone leaves. Investors will usually expect something similar, so setting it up yourselves early keeps control of the terms.

The founder agreement

Put it in writing, with a solicitor. A good agreement covers roles, decision-making and reserved matters, equity and vesting, leaver terms, IP assignment to the company, confidentiality, restrictions on competing, and what happens on deadlock. Make sure each co-founder signs an IP assignment.

Worked example

Harbourline is a fictional Liverpool tech startup building port logistics software. Its three co-founders split equity equally at incorporation with no vesting. Eight months in, one co-founder took a full-time job elsewhere but kept a third of the company. When Harbourline approached angels, they asked for the cap table to be fixed first. It took months of negotiation to buy back part of the stake.

Contrast Quaywise, another fictional company in the same building. Its two co-founders agreed a 55/45 split reflecting different time commitments in year one, four-year vesting with a one-year cliff through leaver provisions, and a clear deadlock rule. When one co-founder left after two years for family reasons, the agreement applied as written: they kept their vested shares, the rest returned, and the relationship stayed intact.

Common mistakes

• Splitting equity on day one, with no vesting, before roles are clear.
• Giving large stakes to early helpers who are really advisers.
• Leaving IP in a co-founder’s personal name.
• Avoiding hard conversations about money and commitment.

What to measure

• A signed founder agreement and IP assignment for every co-founder.
• A cap table that is accurate and matches Companies House filings.
• A regular co-founder review, for example quarterly, of roles, commitment and how decisions are being made.