At StartupClubZA’s recent Founder Day in Johannesburg, a legal masterclass - hosted by Adrian Dommisse of Dommisse Attorneys unpacked some of the most overlooked - but critical - legal foundations that every South African startup must get right.
From navigating co-founder equity splits to implementing vesting clauses, Dommisse shared insights into how startups can avoid common legal traps, build strong governance structures, and present investor-ready cap tables from day one.
How to Structure Equity for Startup Founders in South Africa
Too many founders make the mistake of thinking equity is a thank-you gift for being there at the beginning. But as Dommisse pointed out, equity is not about past effort or loyalty - it’s about future value creation.
Before chasing funding, founders must agree early-on on who owns what, based on each person’s expected contribution over time. This includes vesting clauses, exit arrangements and decision-making protocols.
“Equity isn’t about charming personalities," said Dommisse. "It’s an implicit understanding of the value you’re expected to create over the next four to 10 years."
Why Founders Must Define Roles and Equity Commitments Early
It's critical for startups to be clear and upfront about what each founder is expected to bring to the table - be it time, skills, funding or strategy. If someone doesn’t deliver, their equity should be recoverable.
If a co-founder doesn’t deliver on their side of the agreement, their equity should NOT remain with them. “Equity allocation is an implicit understanding of what your expected commitment and contribution is. If that commitment is not met, that equity needs to come back,” Dommisse emphasised.
Without a recovery mechanism, founders risk locking in value for someone no longer contributing - a concept known as dead equity.
Avoiding Dead Equity: Why Clean Cap Tables Matter to Investors
Dead equity is when a founder walks away from the business but keeps their shares. This not only drains value but can scare off future investors or limit the startup’s ability to hire talent.
“Every single basis point of your equity should be working for you,” said Dommisse. “Whether it’s founders earning it, employees being incentivised through the employee share ownership plan (ESOP), or investors injecting capital—if someone’s not adding value, their equity shouldn’t stay on your cap table.”
Startup Vesting Clauses: What They Are and Why You Need Them
The solution? Vesting clauses, which allow founders to earn their equity over time - typically over four years, with a one-year cliff. If someone leaves before completing their vesting period, the unvested shares are returned to the company or the remaining founders.
Dommisse stressed the importance of putting vesting in place from the start, even if no investors are yet involved. “If a founder exits before a major value-creation milestone, you'll need that equity to incentivise their replacement. If not, that equity will have to come from yours,” he explained.
Vesting is not just a legal formality, it’s a tool that protects the business, motivates founders, and reassures potential investors.
How to Set Clear Decision-Making Rules in Founders’ Agreements
While not as headline-grabbing as funding or equity splits, clearly defining how decisions are made in the business can be just as important (its structure). Who holds the final say? Will decisions be made by consensus or majority?
These choices will influence how your startup navigates exits, investor negotiations, and day-to-day operations.
“While you may not need a full executive structure from day one, capturing decision-making processes in your founding agreements helps prevent future disputes,” said Dommisse.
Building a startup is risky. But failing to sort out your legal basics multiples that risk and can derail even the most promising ventures. From vesting to equity allocation, these legal building blocks determine whether your company can attract talent, raise capital and scale.
As Dommisse concluded: “Get these structures in place from the start—not for investors, but for yourselves. If you don’t, you’ll be negotiating backwards under pressure when it really matters.”
Lungile is the Digital Editor for TechAfrica, with a knack for storytelling, technology and innovative ideas. Working with TechAfrica, she takes simple ideas and turns them into amazing stories.
