When co-founders start a business, deciding who gets what share of the company is one of the first big decisions they’ll make, and one of the most important. Get it right and you create alignment and a clear path for growth. Get it wrong and you risk disputes, resentment and a business that struggles to attract investment. In this video, we walk through a structured way to approach the equity split by weighing up each founder’s financial contribution, role and personal risk, with a practical example of how three founders might divide their shares. We also explain why an equal split can lead to deadlock, why investors are wary of “dead equity”, and how a properly drafted shareholders’ agreement or founders’ agreement helps make your business investor ready.
A note on our presenter: the Mark Glenister presenting this video isn’t quite the real Mark Glenister. He’s an AI-generated version of Mark: same face, same voice but never needs a coffee break. The real Mark (and the rest of the JPP Law team) put together the legal content, so you’re in good hands, whether they’re human or digital.
No Sound? Here’s the transcript…..
How do you split equity between co-founders?
It’s one of the first major decisions you’ll make in a startup and one of the most important.
GET IT RIGHT – and you create alignment, motivation, and a clear path for growth.
GET IT WRONG – and you risk disputes, resentment… and in some cases, the failure of the business.
This video is for Founders who have ambitious growth plans and want to understand how the initial equity split can have an impact on how attractive the company is to investors.
First, I will talk through suggestions on how to split equity between co-founders,
then I will explain the legal framework you need to put in place to ensure that the business is both investor ready and legally protected.
So, when it comes to splitting equity, how do you actually decide who gets what?
There’s no single formula, but there is a structured way to approach it.
Start by breaking down contributions.
Let’s consider financial contribution versus time.
Look at what each founder is putting in.
- Is someone investing cash?
- Is someone working full-time without salary?
A useful way to think about this is:
What would it cost to replace that contribution?
For example:
If one founder is investing 50,000 pounds, and another is working full-time in a role worth 80,000 pounds a year — those contributions can be compared on a more equal footing.
In early-stage startups, time is often more valuable than cash — because execution is what drives the business forward.
The next consideration is roles and responsibilities.
Look at who is responsible for delivering key parts of the business and when will they need to deliver their contributions.
Ask:
- Who is building the product?
- Who is responsible for revenue?
- Who is running the business day-to-day?
Equity distribution and any vesting arrangements should reflect ongoing responsibility, not just initial input.
A founder who is central to the business long-term will usually justify a larger share than someone with a limited or short-term role.
Finally consider risk.
Has someone left a secure job?
Is someone taking no salary?
Has anyone given personal guarantees or invested significant capital?
Higher personal risk should usually be reflected in equity.
Once you’ve assessed those three areas — money, role, and risk — you can start to build a split that reflects reality and also consider any vesting arrangements.
In simple terms, vesting means that ownership is earned over time rather than granted outright on day one but we cover that in more detail in the video that follows – Vesting Explained
Let’s bring this to all to life with a practical example.
Imagine a startup with three founders:
Founder one is The Technical Founder who builds the product, works full-time from day one and takes responsibility for ongoing development and delivery. Initially Founder one takes no salary.
If you were to hire someone to do this role, you might be paying 65 to 120,000 pounds a year.
Founder one is taking significant risk by committing full-time hours with no income.
Founder two is the Commercial Founder who Leads sales, marketing, and growth and is responsible for generating revenue and securing customers Founder two is also working full-time, initially with no salary.
Founders one and two hold high-impact roles — critical to whether the business succeeds or fails.
Founder three – the investment Founder – provides strategic support and invests 50,000 pounds into the business.
Founder three provides strategic input but only works part time at an advisory level.
A fair and realistic outcome here might look like this.
The Technical Founder gets f40% The Commercial founder also gets f40% and the investment Founder gets the remaining 20%.
But this percentage recognises that their contribution is not enough to outweigh those doing the day-to-day work.
The two full-time founders hold the majority — because they are building the business day-to-day, taking the most risk and driving long-term value. The split recognises that the financial investment does not outweigh the day-to-day contribution.
The third founder still receives meaningful equity — reflecting their financial investment and their strategic contribution. The key point is this
Equity should reflect who is actually building and carrying the business forward over time — not just who had the idea at the start.
Market value can be a good way to facilitate equity split discussions.
Assigning a monetary value to each founder’s contributions can provide a clearer basis for equity splits.
This involves evaluating the market rates for comparable skills and contributions, offering a more objective framework for discussions.
By comparing the cost of hiring external experts or consultants, founders can better appreciate the intrinsic value each member brings to the table.
This approach can also help in making informed decisions about bringing in new team members or advisors in the future, ensuring that all contributions are fairly recognised and rewarded.
One obvious, but risky approach to equity division is equal shares.
However, an equal split rarely reflects reality and from a legal and practical perspective, it can create a significant risk known as DEADLOCK!
Deadlock arises when founders or groups of founders have equal control as directors and shareholders but disagree on a key decision.
Because neither party has control, neither can outvote the other which may leave the business unable to act.
So avoid a deadlocked structure if possible.
If a deadlocked structure is necessary it can be managed by including deadlock resolution provisions in the shareholders’ or founders agreement .
In practice, most startups take a balanced approach — combining fairness with recognition of individual input.
One final, and important, point on equity split.
You need to anticipate the future.
You need to consider how the equity split aligns with your growth strategy, funding rounds and, even though it may seem too early to consider, your exit strategy.
By aligning the initial equity split with the long-term goals, founders reduce the risk of conflict as the business evolves.
By way of an example, let’s consider what impact the equity split may have on potential investment.
Investors are backing the founders, not just the idea.
They want to see that the key people are properly incentivised and Founders have enough equity to stay committed long-term.
A founder having too little equity raises concerns:
Will they still be motivated in 3–5 years? And do they have enough upside to justify the effort?
The second concern is that, investors will question an equity split between founders that does not reflect reality.
For example, a passive non-financial founder holding a large percentage will sound alarm bells as will a key operator holding a small stake.
A situation to avoid is having an early contributor who is no longer involved but still owns significant equity
This is often referred to as “dead equity” — and investors don’t like it.
In many cases, investors will require this to be fixed before they invest — which can lead to difficult re-negotiations between founders.
But we come back to this point in a moment when I explain the role of shareholders agreements and founders agreements and the purpose of vesting arrangements in relation to the founders’ shares.
OK – so you have decided on your equity split What next?
You need to understand the role of shareholders agreements and founders agreements.
Well-structured agreements do more than just record who owns what.
It defines roles and contributions, keeps everyone aligned on the direction of the business, provides a clear framework for resolving issues and reduces the risk of costly disputes later on.
It also becomes incredibly important when you start speaking to investors.
A documented agreement shows that the founding team is organised, aligned, and thinking long-term — which is exactly what investors want to see.
Let’s take a quick look at the key components agreement that investors expect to see
First, the details of the equity split between founders and any vesting arrangements should be described .
Investors want to see, a clear ownership structure with no unnecessary complexity and funding rounds can be delayed or even fail if the equity split between the founders has not been properly documented.
So how can JPP Law help a startup with their equity split decision?
Equity splits are not just commercial and financial decisions — they are legal ones.
One of JPP Law’s startup lawyers can help you, with your other advisors, to structure the equity split properly, identify risks you may not have considered, anddraft a comprehensive shareholders or founders agreement .
If you’re starting a new venture, it’s worth getting legal advice early.
This is why at JPP Law, we offer an initial complimentary consultation. We can guide you through the legal decisions you need to make, and provide a fixed fee quote for any legal documents you may need.
On our website you will find an online booking system where you can arrange that complimentary legal consultation, and you will find a link to our website in the comments below.
And if you find this video useful, please take a moment to like the video and subscribe to the JPP Law startup channel.
Thanks for listening!
