Company setup and early instruments
Founder equity, vesting and agreements
How co-founders split equity, implement four-year reverse vesting with cliffs, handle acceleration and file the 83(b) before the clock runs out.
Equity among co-founders is a multi-year incentive alignment problem: who stays, who leaves, who owns what when the company is worth something and when it is worth nothing. Handle it with clear percentages, vesting and written departure rules — or inherit a deadlock that kills the company faster than a competitor will.
This sits on top of incorporation: you need a Delaware C-corp and actual stock purchases before vesting math means anything.
Concepts in this section
Read them in order. The departure math only makes sense once the split and the cliff are in place.
| Step | Concept | What it answers |
|---|---|---|
| 1 | Splitting founder equity | Equal, 90/10, or something in between? |
| 2 | Reverse vesting | What happens if a founder leaves at month 10 vs month 18? |
| 3 | Founder acceleration | Do unvested shares vest on a sale? |
| 4 | Co-founder agreements | Who is CEO, and how do you break a 50/50 freeze? |
File an 83(b) election within 30 days of the stock purchase. That is a tax action, not a vesting action, and missing it is one of the expensive founder errors. Details live with equity taxes.
As an early employee, founder vesting exists so your option pool is not trapped under dead equity. When you evaluate an offer, ask what fraction of the company is still subject to founder repurchase rights; heavy unvested founder stock is normal early and becomes less so over time.
The departure math is worth doing before anyone leaves. Two founders at 50/50 with standard four-year reverse vesting: leave at month 10 and you keep nothing; leave at month 18 and you keep 37.5%, with the rest repurchased at pennies. Acceleration on a sale is a separate clause — double-trigger does not fire on a quiet resignation. A 50/50 board also needs an escape hatch (independent director or a short unanimous-consent list) so the first real disagreement does not freeze hiring and fundraising.
Common mistakes
- No vesting. "We trust each other" until someone leaves with 40%.
- Handshake percentages. No stock purchase agreement, no ledger, no 83(b).
- Single-trigger acceleration on all founder stock. Complicates M&A and financings.
- Advisor equity at founder-level percentages. Use small advisor grants with short vesting.
- Revisiting the split after a SAFE closes. Early investors underwrote the prior cap table.
Key takeaways
- Prefer near-equal splits for true co-founders starting together; document any unevenness.
- Default vesting is 4 years with a 1-year cliff; founders use reverse vesting via company repurchase of unvested stock.
- Prefer double-trigger acceleration over single-trigger for cleaner financings and M&A.
- File 83(b) within 30 days of the stock grant.
- Model departure cases with real share counts before you sign.
Further learning
YC's legal and finance lecture covers formation, vesting and early mistakes in one sitting:
The Holloway Guide to Equity CompensationStock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for both employees and managers.Holloway
Carta — Filing an 83(b) electioncarta.comRelated
Incorporation and the Delaware C-corp
Why VC-backed startups incorporate as Delaware C-corps, how founder stock is issued, and the setup that prevents diligence disasters later.
Reverse vesting
Founders buy stock on day one, then earn the right to keep it — four years, a one-year cliff, and company repurchase of the rest.
Equity taxes: ISOs, NSOs, 83(b), AMT and QSBS
How US tax rules hit option exercise and share sales — NSO ordinary income, ISO AMT, 83(b), QSBS after the 2025 changes.