Marry in haste, repent at leisure. The producers of The Bachelorette might disagree, but the vast majority of corporate founders would whole-heartedly nod their heads, and have five war stories to back it up.

From the outset, founders are tempted to talk equity, which really is just power and money wrapped into one shiny ball. Whether it’s because they like the other founders and want to get the “uncomfortable stuff” out of the way, or because they feel it will create clarity in developing the business, there’s a feeling this needs to be one of the first decisions. But truly, as research shows, it shouldn’t.

2. Fair Doesn’t Have to Mean Even

As you take time to peel the proverbial onion, it will become clear that a fair split of the equity doesn’t necessarily mean an even split. Research also shows that teams that negotiate equity splits over a longer period are more likely to decide on an unequal split, as they uncover differences in past and future time/idea/financial contributions, involvement in outside opportunities, and general preferences. Also, investors prefer unequal equity splits, as it signals that founders aren’t opposed to having uncomfortable conversations and decisions.

3. Save Some for Later

Remember that others will be joining the company that will want to have founder’s shares, which, by the way, have different tax consequences than common shares. Therefore it is wise to leave a large slice of the equity pie for future employees, which is what Google founders Larry Page and Sergey Brin did, and subsequently hired Eric Schmidt as CEO. Founders are often relegated to Vice President roles as investors bring in seasoned executives to lead the company into it’s next phase. If shares haven’t been reserved, it may be difficult to ensnare future investors and/or executives.

If you are ready to create an equity agreement, have it drafted by an outside business organizations attorney who can create a binding contract that includes everything you may want, and probably even a few ideas you haven’t considered.

Related Resources:

  • Find a Business Organizations Attorney Near You (FindLaw’s Lawyer Directory)
  • Founder Equity Splits for Startups: What You Need to Know (FindLaw Free Enterprise Blog)
  • Law Firm Shares Best Practices for Startup Early-Stage Investment (FindLaw Technologist Blog)

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