Partnership Agreement Essentials: What Every Founder Forgets

1. Equity Split Is Not 50/50 By Default

Equal split feels fair but ignores: idea origination, capital contributed, full-time vs part-time commitment, industry connections, and who quit their job. Consider a dynamic split based on contributions over the first 18 months.

2. Vesting — The Clause That Saves Startups

Standard: 4-year vesting with 1-year cliff. If a co-founder leaves at month 8, they get zero equity. Without this, a departing co-founder walks away with half the company.

3. Decision Rights and Deadlock

Day-to-day decisions: designated CEO decides. Major decisions (fundraising, selling company, firing co-founder): unanimous or super-majority vote. Include a deadlock mechanism: mediation → binding arbitration → buy-sell trigger.

4. Capital Contributions and Future Funding

Who put in what? Document initial cash, property, and sweat equity. Future capital calls: proportional to equity or optional with dilution for non-participants.

5. What Happens When Someone Leaves?

Good leaver (retirement, disability): company buys back at fair market value. Bad leaver (fired for cause): buyback at discounted price. Deadlock leaver: shootout clause where one names a price and the other chooses buy or sell.

6. Non-Compete Between Partners

During the partnership: obvious. After departure: 12-24 months is standard but must be reasonable in scope. Without this clause, a departing partner can launch a clone the next day.

7. IP Assignment to the Entity

All co-founders must assign pre-existing IP to the company. Otherwise someone can leave and claim they own the core technology. Do this at formation, not at Series A when lawyers find the gap.

8. Dissolution and Wind-Down

How to split remaining assets? Debts first, then capital contributors, then profit split. Without this, dissolving the company becomes a legal battle that costs more than the remaining assets.

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