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.
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.
