Split founder equity—ownership in the company—by future commitment and contribution, not only by who had the idea. Put every founder’s shares on a vesting schedule; four years with a one-year cliff is common practice, not a rule. If you receive restricted stock, meaning shares subject to conditions such as vesting, decide promptly about a Section 83(b) election: the IRS filing deadline is 30 days after transfer and cannot be extended. Keep a clean capitalization table, the record of company ownership, from day one; investors, licensors and acquirers will all read it.
How to think about the split
Discuss what each founder will contribute and when. Separate recognition for past work from the responsibilities needed to build the company.
- Commitment and timing: Full-time versus part-time work, start dates and conditions for changing commitment.
- Role and replaceability: Responsibilities, scarce expertise and the difficulty of finding someone else to do the work.
- Prior work and intellectual property: Inventions, software or other assets, often brought in through a license or ownership assignment.
- Cash invested: Money contributed and how that contribution will be documented.
- Opportunity cost: Salary, career options and other commitments each founder gives up.
Equal splits are simple but can hide unequal commitment. Very unequal splits can demotivate founders whose work remains essential. Have the conversation early, write down the reasoning and have an attorney document the agreement.
In university spinouts, faculty inventors who remain in academic jobs often take smaller stakes or advisory roles than full-time founders. The university may also hold equity under the technology license. Confirm what intellectual property the company can use before treating it as a founder contribution.
Vesting and the cliff
Vesting means earning ownership rights over time. A cliff is the initial period before any shares vest. Under the common four-year schedule, 25% vests at the 12-month mark; the remainder vests monthly over the following 36 months.
Founders vest too: the arrangement protects co-founders and investors if someone leaves early. For restricted shares, the company can generally repurchase unvested shares under the agreement, usually at their original price.
Acceleration makes vesting happen sooner. Single-trigger acceleration makes some or all remaining shares vest upon an acquisition. Double-trigger acceleration requires an acquisition plus another specified event, commonly a qualifying employment termination; negotiate the definitions with counsel.
The Section 83(b) election
A Section 83(b) election generally moves taxation of restricted shares to their value when transferred, rather than their value as they vest. That value is often very low at formation, but do not assume it is zero. Tax consequences depend on the facts; speak with a CPA or tax attorney before the grant date.
The IRS requires filing no later than 30 days after the property transfer. If the final day falls on a weekend or legal holiday, the next business day counts. A late election is not allowed; treat the decision as irrevocable because revocation generally requires IRS consent.
The IRS released Form 15620, Section 83(b) Election, with an April 2025 revision. File that form or a written statement by mail with the IRS service center where you file your return, or submit Form 15620 online through an IRS Online Account. Give a copy to the company and keep proof of filing. Verify current filing instructions with the IRS.
Option pools
An option pool reserves shares for future employees and advisors; an option is a right to buy shares under specified terms. Size the pool to a hiring plan, identifying roles and expected grants.
Investors often request that a pool be created or enlarged before their investment. That dilutes existing holders, reducing their ownership percentages, rather than the incoming investor. Model the pool and the financing together before you sign a term sheet.
A dilution example (hypothetical)
The following numbers are hypothetical and rounded.
| Stage | Founder A | Founder B | Founder C | Option pool | Seed investors | Total shares |
|---|---|---|---|---|---|---|
| At formation | 4,500,000 (45.0%) | 3,500,000 (35.0%) | 2,000,000 (20.0%) | none | none | 10,000,000 |
| After creating a 10% pool | 40.5% | 31.5% | 18.0% | 1,111,111 (10.0%) | none | 11,111,111 |
| After a seed round selling 20% | 32.4% | 25.2% | 14.4% | 8.0% | 2,777,778 (20.0%) | 13,888,889 |
Each founder’s share count stayed unchanged; ownership percentages fell because new shares were issued or reserved in this fully diluted calculation. What matters is the value of the stake, not the percentage alone, although a financing does not guarantee greater value.
SAFEs and convertible notes
A SAFE, or simple agreement for future equity, lets an investor pay now and receive shares at a later priced round, a financing that establishes a share price. It usually includes a valuation cap, a ceiling used to calculate conversion pricing, and/or a discount, a reduction from that round’s price. A SAFE is not debt: it has no interest or maturity date.
A convertible note is a loan that converts into equity at a later round. It carries an interest rate and a maturity date, when repayment becomes due, often with a cap and/or discount. Both instruments convert later and therefore dilute later; model their conversion before signing several agreements. Compare them with other startup funding options.
Cap table hygiene
- Maintain one source of truth with a named person responsible for updates.
- Record every grant, transfer and conversion, with supporting documents.
- Retain signed stock purchase agreements and board approvals.
- Track vesting dates, vested balances and departures.
- Maintain a fully diluted view: ownership assuming reserved options and convertible instruments become shares, with assumptions explicit.
- Avoid equity promises by email; use formally approved, documented grants.
Equity and tax rules are technical. This guide provides information, not legal, tax or investment advice; work with a startup attorney and a CPA.
Frequently Asked Questions
Should founders split equity equally?
An equal allocation can fit founders with comparable responsibilities and commitment. Discuss differences openly before choosing it, and document the resulting expectations.
What happens if a founder leaves before the cliff?
Under a cliff schedule, no shares have vested before that point. The signed documents determine how the company handles the unvested shares, including any repurchase.
Do I need an 83(b) election for restricted founder stock?
The decision depends on the stock terms, value and your tax circumstances. Ask a CPA or tax attorney to evaluate it before receiving the shares, so filing time is available.
Does an option pool reduce my number of shares?
Creating a pool generally leaves your existing share count intact. It reduces your percentage when the reserved shares are included in the ownership calculation.
Can several SAFEs create unexpected dilution?
Yes, their combined conversion can leave founders with less ownership than expected. Calculate the agreements together under possible financing terms and review the assumptions with counsel.