When “We’ll Formalise Later” Becomes the Fallout Itself: Equity Promises Gone Wrong

In the adrenaline of early-stage startup building, founders often defer paperwork. Especially when they’re bringing in strategic advisors, tech collaborators, or initial team members on sweat equity.

The promise is usually: “Let’s get started. We’ll formalise equity later.” Until… later never comes. Or worse, the working relationship breaks down before vesting is formalised.

Over the past year, I’ve encountered multiple disputes of this exact nature. The themes are disturbingly consistent:

1. Handshake Equity: The verbal promise made in a WhatsApp message. “You’ll get 3%.” The person joins, adds value, and the promise goes cold once the startup gets funded or pivots.

2. One-Way Paperwork: The founder issues a letter. But it’s vague, doesn’t record key terms (vesting schedule, cliff, exit events), or has no timestamp of mutual agreement.

3. Post-facto Dilution Tactics: In some cases, dilution happens without the knowledge of the original contributors. The shareholding structure is redrawn with no board discussion, citing “technical oversight.”

4. Legal Fallout: Once disputes arise, the aggrieved party has to:

• Prove existence of the promise (screenshots, email trails, calls).

• Show performance or contribution.

• Overcome hurdles of absence of formal shareholder agreement or SHA protections.

What Should Have Been Done?

• Draft Letter of Intent (LOI) early, even if SHA is delayed.

• Clearly define vesting conditions and what happens if the collaboration ends prematurely.

• Record all significant communications on email or signed documentation.

• Never issue share certificates or ESOP letters informally.

Arbitration Angle

Many such disputes can be mediated.But when parties feel blindsided, they push for formal proceedings. These can be expensive, and worse, emotionally taxing for both sides.

My Advice: If you’re promising equity, write it down. If you’re receiving such a promise, confirm it in writing. If you’re unsure, involve a lawyer to help frame it neutrally — before it turns adversarial.