Yet to incorporate your startup? Read this!

Often startups begin life as a project, hobby, hackathon submission etc. way before anyone thought about incorporating a company to formalise it. This is perfectly normal and it’s very likely that there will be some period of collaboration and figuring stuff out prior to incorporation. However, I’ve been involved in a couple of situations where individuals crop up further down the line (i.e. once a startup has received some press attention after having raised a round etc.) and stake a claim for a share in a company.

Often the claim goes something like:

“I was there that time in the coffee shop when we (current founders and them) were discussing the idea and I made X suggestion therefore I’m a co-founder and I’m entitled to Y% of the company”

Whilst it may be very difficult for someone to provide enough evidence to actually bring a successful claim like this, even having it potentially hanging over the company can be problematic (particularly around fundraising when investors are doing due diligence).

So, what can you do to protect against this?

At the point you start collaborating you should set out who you are collaborating with on your idea and who is going to own what in terms of % should you go on to set up a company. This doesn’t require a long-winded shareholders agreement or an expensive lawyer to draft it. You can probably get away with something on the back of a napkin at a push. However, I’d recommend something a bit more robust – for a free example of a simple template checkout the Seedsummit website here.

Unfortunately, nothing can stop someone bringing an entirely fictional and unfounded claim against your startup. I hate seeing such claims stress out founders and take up their valuable time. Having a clear paper trail in the early days, however basic, is a great way of hopefully mitigating against any effect and allows you to get on with building your business!

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