Legal Mistake You Should Avoid in Your Start-up

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LEGAL MISTAKES YOU MUST AVOID in your business startup

Previously we published an article on Legal Mistakes That Might Make You Lose Your Business, if you’ve not seen it, click Here. Now this is a complimentary awareness to the previous one by Ifeoma Ben.

One major legal mistake you should avoid in your startup or business is;

Issuing Founder shares without vesting

Founder Vesting is when Founders agree that their shares will vest a period of time.

Start-up Co-Founders usually agree to have their shares vest over a certain period of time or upon achieving certain goals. 

Where Founder shares are issued without vesting agreement, it could cause a lot of problems for the company.

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Take for instance, if Mr A and Mr B incorporate a company and each of them owns 50% of the shares; without vesting agreement, Mr B can leave the company soon after incorporation and will still be entitled to ownership of his shares. 

However, if the parties have a vesting agreement which provides that vesting will take place over 4 years with 1 year cliff period, any party that leaves before 1 year will have to return his shares without being paid a fair value for it. 

Share vesting is very important as it serves as a mitigation tool where a co-founder decides to leave the Start-up.

Always ensure that you have a Share Vesting Agreement with your Co-Founders.

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