Shared Equity Agreement Template

In plain language: Identifies every equity holder by full legal name and entity type, and states the purpose and background of the agreement.

Common mistake: Using trade names or nicknames instead of full registered legal entity names. Enforcement against the wrong entity — or no registered entity at all — can void the agreement.

In plain language: States each party's exact ownership percentage and attaches or references a cap table showing the full equity structure.

Common mistake: Stating percentages in the body without attaching a cap table. As new shares are issued, the body language becomes inaccurate and disputes arise over the current ownership structure.

In plain language: Records what each party is contributing — cash, IP, property, or services — as consideration for their equity, and sets the timeline for delivery.

Common mistake: Attributing a dollar value to non-cash contributions (IP, services) without an independent valuation or documented methodology. Inflated valuations can trigger tax consequences and create disputes at exit.

In plain language: Defines the timetable over which equity is earned, the cliff date, and any events — sale of the company, termination without cause — that accelerate full vesting.

Common mistake: Omitting acceleration provisions entirely. When a company is acquired before a co-founder's shares are fully vested, unvested equity may be cancelled without the co-founder receiving any benefit from the exit.

In plain language: Specifies each holder's voting power, which decisions require unanimous or supermajority consent, and how day-to-day management authority is allocated.

Common mistake: Giving equal voting rights regardless of equity percentage without the parties explicitly agreeing to that structure. A 10% holder with equal voting power can block a 90% majority — a common source of deadlock.

In plain language: States how profits and losses are distributed among holders — typically pro rata to equity percentage — and the timing and method of distributions.

Common mistake: Not specifying a minimum cash reserve before distributions are required. Without one, a cash-strapped company can be forced to make distributions, triggering insolvency risk.

In plain language: Prohibits any party from selling or transferring their equity without first offering it to the other holders on the same terms.

Common mistake: Omitting the transfer restriction clause entirely for closely held companies. Without it, a co-founder can sell their stake to a competitor or an unwanted third party with no recourse.

In plain language: Allows majority holders to compel minority holders to join a sale (drag-along) and gives minority holders the right to participate in any majority-holder sale on the same terms (tag-along).

Common mistake: Including drag-along rights without a minimum price protection for dragged minority holders. Courts in several jurisdictions have struck down drag-alongs that allowed majority holders to force a sale at below-market value.

In plain language: Defines how one holder may buy out another upon a triggering event — departure, death, disability, or irreconcilable deadlock — and how the buyout price is determined.

Common mistake: Defining buyout price as book value rather than fair market value. Book value routinely understates the worth of a profitable business, leaving departing founders significantly undercompensated.

In plain language: Specifies which jurisdiction's law governs the agreement and whether disputes go to arbitration, mediation, or court.

Common mistake: Choosing a governing jurisdiction with no connection to where the company operates or the parties reside. Courts in the parties' home jurisdictions may override a foreign governing-law clause when local mandatory rules apply.

A shared equity agreement is a legally binding contract that defines the ownership interests two or more parties hold in a business or asset. It specifies each party's equity percentage, capital contributions, vesting terms, voting rights, profit allocations, transfer restrictions, and exit mechanics. It replaces informal handshake arrangements with enforceable written obligations and serves as the primary governance document for closely held companies and co-investment structures.

Co-founders splitting ownership of a new company, existing business owners admitting a new equity partner, investors receiving a stake in exchange for capital, key employees receiving equity compensation, and co-investors in real estate or joint ventures all need a shared equity agreement. Any arrangement where two or more parties hold an ownership interest in the same asset should be governed by a written agreement before money or work changes hands.

A shareholder agreement typically governs the relationship between shareholders in an incorporated company — covering share classes, board composition, and corporate governance. A shared equity agreement is broader and applies to any shared ownership structure, including partnerships, LLCs, unincorporated joint ventures, and co-owned property. For incorporated companies, the two documents often overlap and may be consolidated into a single shareholders' agreement.

In most jurisdictions, notarization is not required for a shared equity agreement to be legally binding — signatures of the parties with dated witness lines are typically sufficient. However, if the agreement involves real property equity or is being filed with a government registry, notarization may be required. Consider consulting a lawyer in your jurisdiction to confirm execution requirements before signing.

The most widely used structure is a 4-year vesting schedule with a 1-year cliff — meaning no equity vests during the first 12 months, then 25% vests at month 12, and the remaining 75% vests monthly over the following 36 months. This structure is standard among venture-backed startups and is typically required by institutional investors before a Series A or Seed round. Shorter vesting periods (2–3 years) are common in later-stage hires or co-founder arrangements where significant prior work has already been completed.

A properly drafted shared equity agreement will restrict transfers through a right of first refusal clause, requiring any holder wishing to sell their stake to offer it to the other holders first on the same terms. Transfers without following this process are typically void under the agreement. Some agreements also require board or co-holder consent for any transfer, regardless of price. Without these restrictions, equity can be sold freely to unvetted third parties.

The buyout and exit mechanics clause governs departure. It typically gives remaining holders the right — and sometimes the obligation — to purchase the departing holder's equity at a price determined by the agreed methodology (fair market value, earnings multiple, or formula). The agreement should also specify what happens to unvested equity: standard practice is that unvested shares are forfeited or repurchased at cost. Without a clear exit clause, departing co-owners and remaining holders frequently end up in litigation.

A well-drafted template is generally enforceable when properly executed by all parties with the required signatures, provided the terms comply with applicable law in the governing jurisdiction. However, given the financial stakes involved — equity disputes frequently involve six-figure or seven-figure interests — legal review is strongly recommended before execution. A lawyer can identify jurisdiction-specific risks, such as non-compete enforceability, securities law compliance, and tax consequences of non-cash contributions.

Issuing equity in exchange for services can trigger immediate taxable income for the recipient in many jurisdictions unless an 83(b) election is filed within 30 days of the grant date in the US. Non-cash contributions (IP, property) may also have tax consequences for the contributing party. In Canada, equity issued to employees or service providers triggers employment income rules. Consult a tax advisor before finalizing contribution valuations and equity issuance structures — the tax cost of getting this wrong can exceed the legal cost of getting it right.