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Who counts as a founder?

Co-foundersFormationEquity

The word founder has no legal definition. Nothing in Delaware's statute or anyone else's gives a founder rights an ordinary stockholder lacks, and a person's stake, vesting, role and control come entirely from the stock purchase agreement, the invention assignment, the bylaws and any employment terms they sign. What the title does carry is permanence. A person the company names as a co-founder in its charter documents, its pitch deck and its press will be a co-founder in every later account of the company, including the accounts written after they have left.

Founders and early hires

The practical line is timing and price. Founders buy their stock at formation, at par value, when the company is worth almost nothing, and take the risk that it stays that way. Someone who joins after the company has a product, a round or revenue buys at a higher price or receives options, and usually gets less, because the risk they are taking is smaller. A person who will only join once the company is funded is not, on that logic, taking a founder's risk, and is usually given an early hire's grant with the founder title if the team wants to give it.

The people who help before there is a company

A friend who wrote the first prototype, a professor who advised, a designer who made the logo for free: each may later say they were a founder, and each will have a claim in proportion to what was promised. The way to avoid the argument is to decide before incorporating who is on the team and on what terms, and to paper everyone else as an advisor or contractor with a small grant and an assignment of what they built. Nothing prevents a company from having one founder and several early contributors.

Why it is worth being stingy

Successful companies acquire founders in hindsight; the phrase is that success has many parents. A co-founder who does not work out is still a co-founder in the company's story, and a co-founder who leaves with a large unvested stake because nobody thought to put them on a schedule is a co-founder on the cap table too. The title is free. The stock and the vesting are what to be careful with.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.