Few topics create more tension—or more lasting consequences—than how founders divide equity. For most early-stage teams, those initial percentages are determined around a whiteboard, long before lawyers, investors, or valuation caps enter the picture. It feels collaborative and fair at the time. But when circumstances change—one founder leaves, another steps up, or new investors appear—those early decisions can start to strain.

Getting your founder split right (and fixing it when it’s not) is one of the most important legal and governance steps before your first institutional raise. At Founders Law, we advise clients to treat equity structuring as a living process—something that should evolve with the company rather than remain static. Here’s how to think about it pragmatically, and what to do if the original allocation no longer fits your company’s reality.

The Myth of the “Fair Split”

Founders often aim for “fair,” which usually translates to “equal.” But equal doesn’t always mean fair—or functional. In the early days, everyone contributes differently: one founder may bring capital, another may bring technical ability, another industry expertise or relationships. Over time, those contributions diverge even further.

We encourage our clients to think critically about value and expectations before locking in a split. Investors know this. During diligence, they’ll often ask: “Does the cap table reflect actual contributions?” If your 50/50 or 33/33/33 split doesn’t align with the company’s story, it can raise questions about alignment, governance, and risk of future disputes.

The goal is to accurately reflect the expectations and anticipated contributions unique to your co-founder relationship. Our clients find that it helps to document not just ownership percentages but also the rationale behind them—a founder agreement outlining roles and expectations can save friction later. A “fair” split is one that accurately mirrors the relative and expected value of each founder’s ongoing commitment—and that’s documented in a way that can evolve as the business does.

Vesting: The Safety Valve You Need

Every founder agreement should include vesting—a mechanism that lets equity be earned over time, rather than fully granted on day one. Vesting protects the company (and the remaining founders) if someone leaves early, while signaling to investors that equity is tied to long-term contribution. We advise all early-stage teams, even those made up of close friends, to include vesting from the outset—it’s easier to remove protection later than to add it after the fact.

If you have any doubts about whether vesting may be right for your founder team, we strongly encourage you to connect with a few seasoned founders to hear from experience how vesting (or a lack thereof) turned out in practice. You will likely discover that many second-time founders are major advocates for vesting.

The market norm for VC-scaling companies: a four-year vesting schedule with a one-year cliff. That means a founder earns 25 percent after year one, then the remaining 75 percent monthly over the next three years.

Vesting can reset when roles or expectations shift. If a founder transitions to part-time, or a new CTO replaces a technical co-founder, the vesting schedule can be amended accordingly. This is often where “re-splits” come in—adjusting ownership to match new realities.

Under Delaware corporate law, these changes typically require board consent and may be implemented through amending a founder’s stock purchase agreement or by a contribution-and-reissuance of stock, plus an updated capitalization table. Our clients find it helpful when we record documentation contemporaneously; retroactive “handshake agreements” rarely age well.

When a Re-Split Becomes Necessary

A “re-split” simply means modifying existing ownership percentages among founders. While it can be an awkward topic to raise, it’s far better to address early than to let resentment—or investor skepticism—build.

Common triggers for a re-split include:

• Departure or reduced involvement: A founder leaves or scales back involvement before vesting is complete.
• New key hire or co-founder joins: The company brings in a late-stage founder, CTO, or key executive whose contribution justifies meaningful equity.
• Capital infusions by founders: One founder materially funds operation while others do not.
• Investor or advisor input: An incoming investor requests cap table cleanup as a condition to closing.

In each case, the same principle applies: equity should reflect contribution and future commitment, not just history. We encourage founders to approach these conversations transparently and to use valuation data or contribution metrics to anchor the discussion. Adjustments done transparently—supported by valuation data or contribution metrics—tend to preserve trust and withstand scrutiny.

How to Handle a Re-Split Legally (Without Blowing Up the Cap Table)

Re-splits must be structured carefully to avoid tax surprises or corporate-law missteps. At Founders Law, we help clients navigate this process through a structured framework:

1. Diagnose the imbalance. Quantify each founder’s current and projected contributions—capital, IP, sweat equity, and leadership value.
2. Model the revised cap table. Account for issued and unvested shares, option pools, and planned financings.
3. Determine the mechanism. Options include (a) share repurchase/redemption by the company, (b) voluntary surrender by a founder, (c) issuance of new shares to other founders, or (d) adjusting unvested equity schedules.
4. Paper it properly. Work with your lawyer to select the appropriate agreements, document the Board consent, and adjust the cap table.
5. Address tax implications. Early-stage companies typically rely on 83(b) elections to fix tax basis at the time of grant. If equity is surrendered or re-issued, consult tax counsel to confirm whether new elections are needed or whether capital-gain treatment remains intact.

Handled cleanly, a re-split can actually build confidence with investors—it signals self-awareness, maturity, and sound governance.

Preparing for Your First Institutional Raise

Before engaging investors, confirm that your founder equity-split story is clear and defensible:

• The allocation of equity to each founder makes sense in the context of roles and contributions.
• All founder stock is subject to vesting (or reasonable acceleration clauses if appropriate).
• Departed founders’ equity has been properly repurchased or cancelled.
• Cap table matches reality—no handshake deals or unrecorded promises.
• Option pool sizing accounts for near-term hiring.

When investors diligence your company, they’re assessing not just financial upside but, often primarily, the founders themselves and the founder-team dynamic. A clean, logical cap table communicates professionalism and lowers perceived risk.

The Human Side

Equity conversations are emotional because they involve identity and fairness. We advise founders to treat these discussions as structured business decisions, not personal confrontations. Guided by transparent data and grounded documentation, you can preserve relationships and trust.

If you’re considering a change, start with the facts: who’s adding what value, and how that should be reflected going forward. The legal mechanics are solvable; the trust among founders is what truly matters.

Takeaway

Equity splits aren’t permanent—they’re snapshots of contribution at a moment in time. As your company evolves, revisiting those allocations isn’t a sign of failure; it’s evidence of growth.

Before you raise capital or expand your team, take a hard look at whether your current split still tells the right story. If it doesn’t, now is the time to fix it—on paper and in principle.

Noah advises founders and startups on formation, financing, governance, and commercial agreements, helping them build scalable legal infrastructure that aligns with their business goals.