Team, Co-founders & Legal

Should co-founder equity be split before or after we have raised any money, and does it matter that one of us is putting in cash?

A starting point

Split before you raise, when the company is worth nothing and the conversation is cheap. Cash a founder puts in is a loan or priced convertible, not equity: paper it separately so a 5 lakh cheque does not silently become 30% of the cap table. Money in and sweat in are two different instruments, and mixing them is how co-founders end up hating each other by Series A.

Go deeper

Hand-picked from around the web, each with a note on why it earns your time.

3 resources 3 link-checked

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📄 Article
✓ Link checked India Free Intermediate

Why we picked it This is the actual Companies Act 2013 mechanics for the thing you want to do: put your co-founder's 5 lakh cheque in as a director's loan, not equity. It spells out the June 2016 startup exemption, the written declaration that the money is the director's own (not itself borrowed), and the board-report disclosure, so your CA can paper it correctly instead of quietly issuing shares against cash.

Can Startups and Pvt Ltd Companies Accept Loans From Directors or Relatives?

From Lawyered.in by Lawyered Legal Team 8 min read

  • A private company can accept a loan from a director if the director signs a declaration that the funds are their own and not themselves borrowed, disclosed in the board's report.
  • The June 2016 MCA exemption notification relaxed deposit rules specifically for private companies and startups, making a clean founder loan straightforward.
  • A loan is repayable debt with defined terms, structurally separate from equity, which is exactly why founder cash belongs here and not on the cap table.
Open lawyered.in →
📖 Book
✓ Link checked India Free Intermediate

Why we picked it Most equity-split writing is American and ignores that India has no 83(b) election and its own sweat-equity rules. This chapter tells you to buy your founder shares at incorporation when face value is 10 rupees and FMV is nominal, because waiting means a higher FMV and a higher tax hit, which is the concrete Indian reason to split before you raise.

Co-Founder Equity Splits and Vesting (The Founder's Guide to Startup Funding: Protecting Your Interests in the Indian Ecosystem)

From Swimming With Sharks (Indian founder funding guide) by Swimming With Sharks 30 min read

  • Split and issue founder shares at incorporation when FMV is nominal (10 rupee face value); delay raises FMV and your immediate tax.
  • India has no 83(b) equivalent, so timing and paperwork matter differently than in US-centric advice.
  • Section 54 sweat-equity shares carry heavy compliance (special resolution, valuation report, lock-in), so founders usually just take regular equity and keep cash separate.
Open swimming-with-sharks.pages.dev →
📄 Article
✓ Link checked Free Beginner

Why we picked it This is the cleanest statement of your core thesis: money in and sweat in are different instruments. Slicing Pie prices cash at a 4x multiplier and time at 2x precisely because a rupee out of your bank is riskier and scarcer than an hour of work, which is the reasoning that stops a 5 lakh cheque from silently becoming 30 percent of the company.

The Magic of Multipliers

From Slicing Pie by Mike Moyer 7 min read

  • Cash contributions carry a 4x risk multiplier and non-cash (time, ideas) a 2x, because real money out of pocket is scarcer and riskier than sweat.
  • Treating cash and sweat as separate, differently-priced inputs is what keeps one founder's cheque from swallowing the cap table.
  • The multiplier logic gives you a defensible, non-arbitrary way to explain to a co-founder why their cash is repaid or converts, not just gifted equity.
Open slicingpie.com →

People also ask

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