You’re getting married to your co-founder, so get a prenup first

You have an idea. A good one. You talk about it with a friend and they get excited too. They are a developer. You are more into the business side. So, you make a deal: they build it, you handle everything else, and when this thing takes off, you will figure out the rest together.

Two months later, you have a working prototype. You start showing it to people. The feedback is good. You are thinking about incorporating and raising a seed round. And then someone asks you: "who owns all of this?"

You assume the answer is obvious. It is not.

You’re getting married

When two people sit down to build something together, there is a natural tendency to avoid the "awkward" conversation about ownership, compensation, and what happens if things go wrong. You are friends. You trust each other. You will sort it out later.

But "later" has a way of arriving at the worst possible moment. When you are about to incorporate and need to decide who gets what equity. When an investor asks who owns the IP. When your developer friend decides they want to move on, or when the person who registered the domain in their personal name is no longer on speaking terms with you.

This is more common than it should and it can create some of the most avoidable disputes in the early stages of a startup. The problem is not that you worked with a friend and then something went wrong. The problem is that you did it without defining the terms of the relationship. And if you didn’t define the terms of the relationship, someone – the law in this case – will do it for you.

The good news is that none of this is difficult to avoid.

Get a prenup

The fix is not complicated. It just needs to happen ideally before you start building, but certainly before you incorporate. Think of it as the prenup: the conversation you have while everything is still friendly, so that if things ever get complicated, the rules are already written.

Some topics your prenup needs to cover:

1. The equity: In the beginning, you might agree on a 50/50 split. But what if one founder leaves after three months while the other works for three years? To prevent dead equity, you should have a vesting schedule. Let’s imagine you define a 4-year vesting schedule with a 1-year cliff. This means if you leave before 12 months have passed, you get nothing. After that, you "earn" your shares bit by bit every month.
2. The exit: Not all departures are equal, and you should define what happens to a founder’s vested shares when they leave. Normally, leavers are considered either good or bad. Good leavers are people who leave due to circumstances like illness, redundancy, or a mutually agreed transition. They typically get to keep their vested shares or sell them back at Fair Market Value. Bad Leavers are those who leave for bad reasons - gross misconduct, criminal activity, or breaching a non-compete. They are often forced to sell their shares back.
3. Decision-making: Who breaks a tie? If you are 50/50, a disagreement can paralyze the company. Because of that, your agreement should specify i.e. the "Reserved Matters" (like selling the company, pivoting the product, or taking on debt) that require a specific majority (i.e., 75%).
4. Non-competition and IP: If your co-founder leaves, you don't want them starting an identical business across the street the next day or take the product with them. So, make sure to have a non-compete clause to prevent founders from working for a competitor or poaching employees for a set period after they leave. Additionally, add language on IP assignment so that the code, designs, domains, trademarks, etc. are assigned to the company. Without this, the company doesn’t own your product. The individuals do. You generally don’t want that.

The conversation might feel awkward, but having it now is infinitely less painful than having it in a lawyer's office a year later. Agree on what the relationship is, what the contribution is worth, and what happens to the work that has already been done. Then write it down. A short, plain-language document signed by both parties is enough to protect you both.

Q&A

Q1: My friend built the MVP as a favour. Do I really need a written agreement?

Yes. "As a favour" doesn’t generally work in your favour. Without a written agreement, the default position is that your friend likely owns the code they wrote. This does not mean they will ever act on it, but it does mean you have no formal protection if the relationship changes. A one-page document signed by both of you is enough to fix this. 

Q2: What if we have already agreed verbally on how ownership will work?

Verbal agreements are difficult to enforce and to prove. If you have a verbal understanding, the fastest thing you can do is convert it into a written one. Send an email summarising what you agreed, ask your colleague to confirm it in writing. An email chain is better than nothing, and a signed document is better than an email chain.

Q3: If a founder leaves as a "Bad Leaver", do they lose everything?

Depends on what you agree, but usually, yes. Bad leaver provisions are designed to protect the company from founders who act against its interests. They typically forfeit unvested shares and must sell vested shares back at the original cost.

Q4: We are 50/50 founders. How do we avoid a deadlock?

You can designate a "Chairman" with a casting vote for specific topics or agree to bring in a mediator. The goal is to ensure the company can always move forward, even when you disagree.

Q5: Can PaxRocket help us draft these agreements?

Of course. We help founders manage their IP, vesting schedules, and shareholder agreements during incorporation. Sorting this out early is infinitely cheaper than fixing it later. Reach out and let’s make your startup as tidy as possible.