One of the most important — and most contentious — aspects of any startup: who gets how much? And how do you motivate key people through equity? Let's break it down.
Splitting equity between founders
There's no universal rule, but there are principles:
- Equal split (50/50) only works with a truly equal contribution — experience, capital, time, network. With three founders, 33/33/33 leads to deadlock without a clear tiebreaker.
- Vesting is a necessity, not an option — without it you risk a departing co-founder walking away with a large stake without having done a commensurate amount of work.
- Equity is not the same as performance pay — equity reflects the founding contribution, not operational performance. The latter is handled by salary and bonus.
How vesting works in practice
Standard vesting: 4 years with a 1-year cliff.
- After 1 year (cliff) you receive 25% of your interest upfront
- Then each month you receive 1/48 of the remainder
- After 4 years the entire interest is "unlocked"
Example: Jana and Tomáš co-found a startup, each holding 50%. Both have 4-year vesting with a 1-year cliff. Tomáš leaves after 18 months. Without vesting he leaves with 50%. With vesting he leaves with 18.75% (18/48 × 50%) — the rest reverts to the company or is redistributed. The company survives.
What is an ESOP?
An ESOP (Employee Stock Option Plan) is a programme through which employees and key contributors can acquire a stake in the company. They receive options — the right to purchase a stake at a pre-agreed (typically low) price. Options vest over time, similarly to a founding interest.
Why ESOP?
- Motivates key people to stay long-term — they have a direct interest in the company's growth
- Compensates for lower salaries in the early stage when the startup is cash-constrained
- Prepares the company for funding rounds — investors typically expect it (usually a 10–15% diluted ESOP pool)
- Reduces talent churn to competitors
How to set up an ESOP in the Czech Republic
Czech law has no direct equivalent of "stock options" as known in the US or UK. The most commonly used structures are:
- Phantom shares: The employee receives a cash payout at exit or a liquidity event equivalent to the value of a stake — without actual ownership. Simpler to administer, but the employee has no voting rights.
- Options on business interests: A genuine right to acquire a stake at a pre-agreed price. More complex contractually and administratively, but the employee becomes a real shareholder.
- Virtual interests: A purely contractual mechanism — the company pays the equivalent of an interest's value upon defined trigger events. No ownership, but flexible.
Tax implications
This is a complex area that depends on the chosen structure, timing, and level of income. A poorly designed structure can result in an employee paying tax before receiving any cash (so-called "phantom income"). Always consult a tax adviser and lawyer before finalising the structure.
Want to set up an ESOP correctly from the start? We draft ESOP documentation for Czech startups regularly.