Three Things Every Startup Co-Founder Should Settle Before Day One

A three-founder company came to us after two years of growth and one year of internal conflict. They had split equity equally. One founder had gradually disengaged. The other two could not reach a voting majority on any major decision. The company had reached a deadlock before it reached profitability.

The irony is that all of it was foreseeable—and preventable.

Rule 1: Equity Should Reflect Actual Contribution

Equal splits are easy to agree on because nobody has to have a harder conversation. But equity is not just a share of profits—it is a vote, a veto, and a claim on the company's future value.

Before finalizing percentages, agree on a framework for valuing each founder's contribution: capital committed, full-time hours, proprietary technology, customer relationships, and willingness to bear ongoing responsibility. If one founder brings significantly more to the table, the equity should reflect that.

Under China's revised Company Law, capital contribution obligations must be specified in the articles of association, including amount, method, and timing. Set realistic figures from the start.

Rule 2: Design Governance, Not Just Ownership

A 33/33/33 structure without a governance mechanism produces deadlock. Before incorporation, agree on:

• What decisions the legal representative can make independently
• What requires board approval vs. shareholder resolution
• Reserved matters (financing, major contracts, related-party transactions) that require a higher threshold
• Who controls the company seal, bank accounts, and financial records
• A deadlock resolution mechanism—including, in extreme cases, a buyout right

These feel unnecessary when relationships are good. They exist for when relationships are not.

Rule 3: Plan the Exit Before Anyone Wants to Leave

This is the conversation founders avoid and regret skipping. A shareholder agreement should include:

• Vesting schedule: equity should vest over time (commonly four years with a one-year cliff), so a founder who leaves early cannot take a full stake
• Right of first refusal: if a founder wants to sell, remaining founders and the company have the first right to purchase at the offered price
• Buyback provisions: the company or other founders can repurchase equity at a defined price if a founder exits under certain conditions (resignation, long-term non-performance, serious breach)
• Non-compete and IP assignment: core technology and customer relationships belong to the company, not to any individual founder

The best time to discuss exits is when everyone wants to stay. The second-best time is now.