Are you setting up a new corporation or LLC with co-founders? There's a common, critical mistake many young companies make right at the outset: failing to provide for the vesting of equity interests. This oversight can lead to significant problems and fairness issues down the line.
In this direct and impactful video, Phil Crowley, founder of Crowley Law LLC and a seasoned startup lawyer, highlights why implementing equity vesting is essential for any company with two or more founders or equity participants.
Phil explains:
What is Equity Vesting? It's a mechanism ensuring that
founders and early team members "earn" their full equity
stake over a period of time, typically through continued service to
the company.
Why is it Crucial for Co-Founded Companies? If a co-founder leaves
the company prematurely, or if their role doesn't work out,
vesting prevents them from walking away with their entire promised
equity share before they've contributed the expected value over
time. Without vesting, departing individuals could retain
significant ownership without having fully "earned"
it.
When is Vesting Not a Primary Concern? For solo entrepreneurs,
vesting their own equity isn't typically necessary.
The Real-World Consequences: Phil warns, "I've seen too
many people get burned by failing to provide for vesting."
This simple mechanism can save companies from enormous headaches
and ensure a fairer distribution of equity based on actual
contribution and commitment.
Don't let this preventable mistake jeopardize your
startup's future or create unfair outcomes among your founding
team. Understanding and implementing equity vesting from day one is
a cornerstone of sound business formation.
If you're launching a company with partners, this is advice you can't afford to ignore.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
