Legal Mistake You Should Avoid in Your Start-up

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.

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