The best time is as early as possible - ideally before significant work has been done on the project. The second best time is now. Many co-founders start collaborating informally, but once you're committed to building something together, formalizing the relationship protects everyone involved. Don't wait until conflict arises to establish ground rules.

A founder collaboration agreement governs your relationship before formal incorporation. It's a bridge document that establishes equity splits, roles, IP ownership, and other essential elements while you're still developing your concept. When you formally incorporate (typically as an LLC or C-Corporation), you'll create official corporate documents like bylaws, operating agreements, and stock purchase agreements. The terms in your founder collaboration agreement will help guide those formal documents.

Equity splits should reflect both past contributions and expected future contributions. Consider factors like: idea origination, technical expertise, industry connections, capital contributions, full-time commitment, opportunity cost, and risk taken. Equal splits (50/50) are common for two founders who are both fully committed, but don't default to equal splits without discussion. A dynamic split calculator or "equity pie" discussion is often valuable for teams of 3+ founders. Remember that equity without vesting is dangerous - a founder who leaves early should not retain their full stake.

Vesting is crucial because it aligns incentives and protects committed founders. Without vesting, a founder could leave after a short period but retain their full equity stake - creating a "dead equity" problem that can cripple future funding rounds and demotivate remaining founders. The standard 4-year vesting schedule with a 1-year cliff means that founders earn their equity over time, demonstrating sustained commitment. After one year, 25% of equity vests (the "cliff"), and the remaining 75% vests monthly over the following three years. If a founder leaves before the cliff, they typically retain no equity.

When you formally incorporate, the provisions of your founder collaboration agreement will generally be superseded by your formal corporate documents. However, the original agreement remains valuable as evidence of your original intent regarding equity splits, roles, and IP assignment. Some provisions, particularly around IP assignment for work done before incorporation, will continue to be relevant. When you incorporate, you'll want to ensure that all IP is properly transferred to the new entity, and that equity allocations match what was agreed upon in your founder collaboration agreement (subject to any adjustments due to vesting or departures).

Non-compete enforceability varies significantly by jurisdiction. In California, for example, non-compete provisions are generally unenforceable except in very limited circumstances like the sale of a business. Other states enforce reasonable non-competes, typically those limited in geographic scope, duration (usually 1-2 years maximum), and scope of prohibited activities. If you include non-compete provisions, make them as narrowly tailored as possible. Non-solicitation provisions (preventing founders from poaching customers or employees) are generally more enforceable across jurisdictions than broad competitive restrictions.