What is an effective “pre-incorporation-agreement” between possible founders of a startup?

David S. Rose
David S. Rose , Founder and CEO , GUST INC.
8 Nov 2012

The bottom line is that the very question you are asking is one of the trickiest things of all when it comes to startup founding.  On the one hand, if you DON’T make things explicitly clear up front, you are just begging for a future disaster by ‘kicking the can down the road’. On the other hand, if everything is locked in stone before you even start, you may find yourself with a completely untenable structure even six or twelve months out, when it becomes clear that not everyone is contributing as much as you all envisioned at the outset.

It’s sort of a case of “damned if you do, and damned if you don’t”. That said, it’s infinitely better to have a structure which at least provides a framework for taking action, otherwise you may well lose your money, your friends and your company. My suggestion? If this really has the potential to turn into a company (instead of just a school project) find a local lawyer who specializes in this stuff, and who will be willing to help you do a simple incorporation document for a few hundred dollars. Then sit down with your co-founders and divvy up the equity based on the contributions you all believe each of you will make…providing for reverse vesting, a large option pool, and a clear decision-making structure.

Good luck!

Gust Launch can set your startup right so its investment ready.

Gust Launch can set your startup right so its investment ready.

This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.