Most partnerships don't break up over the idea, they break up over equity. Not right away, but a year later, when one person is doing more and the other still owns the same share. That's why you should agree on the split at the start, while you're still on good terms.
Don't split by who had the idea
An idea is worth little. What counts is what each of you will do over the next 3–4 years. Split based on future contribution, not on the past.
Five questions for the split
- Who works on this full-time, and who does it on the side?
- Who is putting in money, and how much? (It's better to lend money to the company than to turn it into equity.)
- Whose skill can the project not get started without?
- Who is taking on the risk: quitting their job, investing their savings, signing contracts?
- Who will lead the company when things get hard?
Have each partner answer on their own, then compare. Where you disagree is where the real conversation is.
Vesting: equity is earned over time
The most important rule: equity isn't handed out up front, it's earned. The usual setup is 4 years, with the first year as a trial period (the "cliff"). If someone leaves after 6 months, they leave with nothing. If they leave after 2 years, they keep half of their share.
What if someone leaves
- "Good leaver" (illness, family, mutual agreement): keeps the part they've earned.
- "Bad leaver" (fraud, joins a competitor, stops working): the company has the right to buy back their shares at nominal value.
- Write down in advance the price at which the company buys back shares.
When 50/50 does make sense
When you both work full-time, both invest a similar amount and are both irreplaceable. In that case, be sure to agree who has the final say in which area, otherwise every argument is left without a way out.