Commentary relevant to Startups, Venture Capital & Emerging Business.
Read analysis by legal discipline. Articles appear only after editorial approval and publication.
A founder may create the prototype, register the domain and write the first version of an application's code long before the company is incorporated. When investors acquire shares in the company, they need to know whether those assets actually belong to it. Use of an asset by a company is not the same as.
Convertible instruments allow investors and founders to postpone a valuation discussion. They do not eliminate it. The instrument's conversion formula, repayment rights and relationship with the Companies Act can materially change the percentage ownership ultimately delivered to.
A startup's equity split may be agreed during an informal conversation between founders. The disagreement arises later, when one founder leaves, another attracts investment and a third claims ownership of half the business despite no longer contributing to it. Equity arrangements should anticipate those.