Founder equity: agree the work before the percentages
There is no statutory formula for dividing founder equity. For a private company in England and Wales, the split should reflect the commercial bargain, share rights and future contributions. Document what happens if the assumptions change.
A percentage is not the whole agreement
Discuss time commitment, cash, existing intellectual property, responsibilities and the risks each founder takes. Separate ownership from salary, director responsibilities and day-to-day decision making. Two founders can own equal shares while having very different operational roles; the documents need to explain how those roles interact.
Check the rights attached to the shares, including voting, dividends and capital on a sale or winding up. A headline percentage does not necessarily describe economic outcomes where different share classes exist. Model the fully diluted position if an option pool or investment is already planned.
Plan for the founder who leaves early
Example: Two founders each receive half the shares, but one stops working after three months. Without an agreed mechanism, the departing founder does not automatically lose shares merely because the original plan was to work for years. Vesting and leaver provisions are negotiated tools that need careful drafting and tax advice.
Discuss illness, caring responsibilities, dismissal, voluntary departure and sale of the business before there is a dispute. Avoid treating every departure as misconduct. Agree who determines the category, how shares are valued and how any transfer is funded. A mechanism that cannot be financed may fail when most needed.
Implement the bargain correctly
The company needs appropriate authority and approvals for share allotments, accurate records and required filings. The articles and shareholders' agreement should work together. Where founders are directors or employees, employment-related securities rules may apply even if everyone describes the shares as founder equity.
Before issuing shares, obtain advice on valuation, restrictions and any time-sensitive elections. Keep evidence of subscriptions and consideration. Revisit the cap table after every transaction, but do not retrospectively rewrite the original bargain without the necessary agreement and formalities. This guide concerns England and Wales; cross-border founders can introduce additional tax and legal questions.
Your next steps
- Agree contributions, roles and departure scenarios before settling the percentages.
- Model voting and economic rights, including planned dilution.
- Complete approvals, records, filings and tax review before treating the allocation as finished.
Sources and scope
General legal information. The contract, applicable jurisdiction and particular facts can change the outcome. This guide does not replace advice on your individual circumstances.