There are a few common ways that founders split up equity and ownership of the company:

1.) Equally: each founder get the same amount of equity. For example, with 2 founders each gets 50%, with 3 founders each gets 33.33%, with 4 founders each gets 25%, etc. This method is most often used by first-time entrepreneurs because it seems more “fair” and is easy to get everyone to agree on it at the outset.

2.) Unequally: each founder gets a different amount of equity/shares depending upon various factors such as:

      i. Past contributions: Who came up with the idea for the business? Who helped refine the idea? Who put money into the company to get it started? Who helped find another co-founder or investor?

      ii. Current contributions: Who is doing the most work right now? Are some founders more in an advisory role while others are the boots on the ground getting things done?

      iii. Future contributions: What role will each person play in the early months? Will that person still be playing a key role later down the road? Who will still be working for the company at all?

      iv. Opportunity cost: Is one founder giving up a great job, while the other is currently unemployed? Is one founder dropping out of a good school, while the other is unemployed?

      v. Your relationship: Do you trust your co-founder to make things right at a later date if you end up feeling like you contributed more than he did? Are you willing to fight over the equity and potentially sacrifice your relationship with the co-founders in order to get additional equity?

Common Problems with Founder Splits

One Founder Leaves Early

What happens when one of your founders decides to no longer participate in the startup and they leave after only a few months? Should they be entitled to the same amount of equity as the CEO who sticks around, working day and night, sacrificing friends and family, all to make the company a success? If you aren’t careful with how you divvy up founders shares this is exactly the situation you can find yourself mixed up in.

One Founder Works More Than Others

What happens when all founders receive the same amount of equity, but later realize that one or more of the founders is doing more work than the others? This often leads to resentment and burn-out, which in turn can cause a founder to leave early.

Solutions to Divvying up Founders Shares

In my experience, the best way to distribute founders shares is through unequal distribution with vesting. By getting all of the founders to sit down at the beginning to assess the relative value of their various past, present, and future contributions, often they come up with a more equitable (yet unequal) ownership split. If later on the founders all agree that things should have been distributed differently because their initial estimates were off, the situation can be remedied through the issuance of additional stock options to the deserving parties. These adjustment meetings can also be built into the founders shareholder agreement.

After the initial split is determined, the founders need to discuss the vesting plan. The typical vesting plan is setup so that a founder receives a certain amount of stock every month over a 4 year period. Depending on the circumstances, a few vesting plan options exist: (i) adding a “cliff”; or (ii) vesting a certain amount of stock up-front. A “cliff” is typically one year in length, and means that the founder doesn’t receive any shares until they have been with the company for that amount of time. Vesting a certain amount up-front is the opposite of a cliff, the founder receives a certain amount of shares right away, with the rest vesting over time. Between unequal distributions, adjustment meetings, stock options, and vesting, most problems that typically plague startups can be addressed at a time before the problems arise and when they are easiest address.