Background Note | HBS Case Collection | February 2009 (Revised June 2011)

A Note on the Legal and Tax Implications of Founders' Equity Splits

by Noam T. Wasserman and Lauren Barley

Abstract

This note summarizes key legal and tax issues that founders should consider as they contemplate an equity split and ownership structure. Specific issues covered include why founders should not delay splitting the equity and whether they should involve an attorney or accountant when they do; the importance of considering intellectual property (IP) issues when splitting the equity and the need to do so consistent with Section 351 of the Internal Revenue Code; and the need to make timely and valid Section 83(b) elections if the founders adopt vesting as part of the equity split.

Keywords: Business Startups; Entrepreneurship; Equity; Taxation; Intellectual Property; Law; Ownership; Partners and Partnerships;

Citation:

Wasserman, Noam T., and Lauren Barley. "A Note on the Legal and Tax Implications of Founders' Equity Splits." Harvard Business School Background Note 809-110, February 2009. (Revised June 2011.)