Despite advice from all over, I don’t believe in ‘legal protection’ between partners. Contracts only get useful after shit has already hit the fan, and so are a waste of time.At the same time, I’m terrified of the idea that shit will hit the fan…

It’s not so different from a prenuptial agreement. In some cases you have to have one, in other cases it only benefits the lawyers.

Legal protection isn’t the solution to everything. How many of the people who recommend getting legal protection actually regretted not getting it themselves? My guess: 0. They’re just repeating conventional wisdom, which when it comes to business is pretty damn worthless anyway.

There are many realistic reasons why your business might fail. One honest founder taking advantage of another honest founder for a business that doesn’t even make money yet? Not realistic. Worry about realistic problems instead.

The only “legal protection” you need to get in business is making sure you have a contract on what equity each one gets as well as a clear vesting schedule. That’s the number #1 post founding source of angst I’ve come across.

A few friends start a company don’t discuss share or vesting, then one drops out and expects to keep “his 33%”. Fireworks.

Legal documentation makes clear everyone’s expectations. I haven’t founded anything, but I’ve many friends who are founders, and I’ve been party to conversations about equity share. I’ve seeing some good partnerships and some that ended strong friendships.

Legal documentation is a great tool, and not just for enforcing contract. In fact, I find that the primary purpose is really communication between partners. I often find that people think about the nature of currency, value, equity, debt, and effort differently. Legal documentation and the discussion around it is a method of agreeing on terminology and to defining expectations. Think of it as a relationship “business plan”, a document that allows your partners to express what they are hoping for out of the business (emphasis) relationship.

I’ve seen it successful as a means of planning, and a tool for clear communication, I suggest you think of it in these terms. There should be nothing to fear in knowing the goals of your team.

Anonymous says:

January 31, 2016 at 7:28 pm

I agree with this post.

Our shareholders’ agreement seemed to take ages to be completed, but in the end it made two persons not become founders at all, and made as discuss our expectations and scenarios in much detail. The two left the company (should have dropped them immediately) and the one that also resisted signing also left before we made money. This meant she had to sell her shares back at a lower price than her investment, but she still wanted to leave.

The documentation has also made it so much easier to get angel investors on board. As everything is already on paper, they have much less room for individual demands, and also look at us as professionals.

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