Learn how to divide and protect startup ownership fairly and legally. Covers equity splits, vesting schedules, 83(b) elections, option pools, and dilution. Ideal for founding teams setting up long-term incentives and avoiding costly equity mistakes.
How to Split Equity Among Co-Founders
Splitting equity is a critical early decision that shapes founder relationships, investor trust, and future motivation. It’s not just about dividing shares — it’s about defining expectations and protecting the company.
What Is an 83(b) Election and Why Should You Care?
The 83(b) election is a tax form founders must file within 30 days of receiving restricted stock. It locks in a low tax basis and prevents huge tax bills later. Miss the deadline, and you could owe taxes on stock you don’t even control yet.
Your cap table is the master record of who owns what. A messy, inaccurate, or overly generous cap table can kill deals and undermine trust with investors. Keep it clean, updated, and aligned with long-term hiring and funding plans.
Vesting protects both founders and the company — ensuring equity is earned over time and no one walks away with a large stake early. Founder agreements are essential to outline roles, equity splits, and what happens if things go sideways.
It’s tempting to trade equity early for a small check — but giving up too much, too soon, to the wrong investor can create long-term problems. Keep your structure clean, set terms wisely, and raise only what you need.
Vesting schedules protect your startup by ensuring that co-founders and team members earn their equity over time. This prevents early leavers from walking away with unearned shares and helps preserve long-term motivation and alignment.
Advisors can bring critical knowledge, connections, and credibility to your startup. But giving too much equity too early — especially without performance expectations — is a costly mistake. Keep it lean, tied to value, and always under vesting.
The Option Pool: What It Is and How It Impacts You
An option pool is a slice of your company set aside for future hires. It helps attract talent — but it also dilutes founders. How and when the pool is created matters, especially during fundraising negotiations.
Early employees often trade lower salaries for equity. Make sure you offer enough to reward risk — but not so much that you lose future hiring flexibility. Equity should reflect their role, impact, and risk.