Most co-founder fights are not really about personality. They are about assumptions nobody said out loud: who makes the final call, who gets paid first, and what happens to someone’s shares if they walk away. This guide helps you answer those questions in writing now, while everyone is still friendly and optimistic.
Why write it down now
In the first months, everything feels easy. You trust each other, the stakes are small and there is no money to argue about. That is exactly why it is the best time to agree on hard questions. Later, when there is revenue, an investor or a family member asking questions, the same conversation becomes much harder.
Many Pakistani startups are founded by friends, classmates or relatives. A written agreement protects the business and the relationship. It is not a sign of distrust. It is a sign that you take each other seriously.
The questions your agreement must answer
Roles and decisions
- Who is CEO, and who owns product, sales, operations and finance?
- Which decisions need every founder to agree? Typical examples are raising money, hiring senior people, spending above an agreed amount in PKR, taking loans and selling the company.
- How will you break a deadlock? For example, by asking a named, trusted adviser to mediate, or by giving the CEO the final say on day-to-day operations.
Michael Seibel of Y Combinator also suggests that only the CEO holds a board seat before a major equity fundraise, which helps avoid board disputes if a co-founder ever has to be removed.
Time and commitment
- Is each founder full-time? If not, by what date will they be?
- What counts as full-time, and are side projects or consulting allowed?
- What happens if someone needs to step back for family or health reasons?
Money
- Who is putting in cash, and is it a loan to the company or an investment for shares?
- When will founders start drawing salaries, and will they be equal?
- What spending can each founder approve without asking the others?
Intellectual property and accounts
- All code, designs, content, domains and social media accounts created for the startup belong to the company, not to individuals.
- Any work a founder created before joining is listed, along with whether the company owns it or can use it.
Leaving
- What happens if a founder resigns, or if the others ask them to leave?
- What happens to their vested and unvested shares?
- How will a price be set if the company buys back shares?
- Can a departing founder hire your staff or approach your customers for a period of time?
How to split equity
There is no formula, but there is a strong default. Y Combinator almost always recommends equal or close to equal splits among co-founders. Seibel’s reasoning:
- Building a valuable company takes seven to ten years, so small differences in the first few months should not decide ownership for a decade.
- Every founder needs to stay motivated through hard years.
- Investors read the split as a signal of how the CEO values the team.
- Execution matters more than the original idea.
He puts it directly: “If you aren’t willing to give your partner an equal share, then perhaps you are choosing the wrong partner.”
A hypothetical example: three founders who all work full-time agree on 34%, 33% and 33%. An unequal split can still make sense, for example if one person joins much later or works part-time. In that case, write down the reason. Advisers and early helpers usually receive small grants, not founder-level stakes.
Vesting: protection for everyone
Vesting means founders earn their shares over time instead of owning them all on day one. Stripe explains that founder vesting “ties how much equity a founder keeps to how long they remain involved with the company.”
The common schedule is four years with a one-year cliff:
- Nothing vests in the first 12 months.
- At the one-year mark, 25% vests at once.
- The rest vests monthly, usually 1/48 of the total each month, until the end of year four.
Stripe gives an example: a founder who leaves at 18 months would have about 37.5% of their shares vested. Unvested shares can be bought back or forfeited, so the founders who stay are not carrying a former partner who still owns a large stake.
Vesting start date
You do not have to start the clock on the day you register the company. Stripe Atlas, for example, lets founders set the vesting start date up to six months before incorporation to recognise work already done. Agree on a start date that feels fair to everyone.
Acceleration
Some agreements speed up vesting if the company is sold. Stripe describes two types:
- Single-trigger: all unvested shares vest when the company is acquired. This is less common, because buyers usually want founders to stay.
- Double-trigger: vesting speeds up only if the company is acquired and the founder is then let go without cause, or their role is eliminated, within a set period, often 12 months.
Stripe also notes that venture investors often require founder vesting as a condition of funding. Setting it up yourselves now is easier than negotiating it under pressure later.
Make it binding in Pakistan
The ideas above come from common startup practice, much of it built on US company law. Pakistani company law has its own mechanics. Once you agree the terms, ask a corporate lawyer to turn them into binding documents, typically your company’s articles of association and a shareholders’ agreement. Ask how vesting, share buybacks and transfer restrictions can be enforced for your company. If you have not incorporated yet, sign a simple founders’ term sheet now and formalise it when you register.
Have the conversation well
- Each founder answers the questions above separately, in writing.
- Meet for a dedicated session and compare answers. Discuss every difference.
- Write a one-page summary of what you agreed and have everyone sign it.
- Review it once a year, or whenever roles or commitments change.
Your co-founder agreement checklist
- Agree roles, decision rights and a deadlock process.
- Confirm each founder’s time commitment and start date.
- Record cash contributions and the salary plan.
- Assign all IP, domains and accounts to the company.
- Choose an equity split and write down the reasoning.
- Set four-year vesting with a one-year cliff, a start date and any acceleration terms.
- Agree what happens when someone leaves.
- Have a corporate lawyer turn the term sheet into binding documents.
Sources and further reading
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