Starting a new business is full-on. You’re wearing all the hats – founder, director, sales, admin, HR, and occasionally unpaid intern too. It’s often around this time, while spinning all these plates, that someone comes along who wants to “help”.

They might be a friend, a former colleague, or someone you’ve just met through networking. They know people. They can open doors. They’ve got industry connections. They’ve even done you a solid already – maybe introduced you to a liquidator, sorted your branding, or “advised” you informally.

But then comes the punchline: they want shares.

Not cash. Not a fee. Equity.

And the pressure is on to say yes. After all, they’ve been helpful. You don’t want to seem ungrateful. And if they’re not getting cash, surely it’s fair?

Hold that thought.

Because giving away equity in your company – especially at the early stage – is a big decision. And it’s one that shouldn’t be made based on guilt, gratitude or gut feeling.

Here’s what you need to know before handing over a slice of your business in return for skills, support or “contacts”.

What exactly are you giving away?

Let’s be clear. Equity is ownership.

Giving someone shares means they legally own part of your company. It gives them rights – to vote, to share in profits, potentially to block decisions, and to get a percentage of the sale price if you sell the business down the line.

And that ownership isn’t temporary. It doesn’t disappear after a few months. It’s usually permanent unless you’ve agreed a clear route to buy it back (more on that below).

Giving away equity is not the same as:

• Offering someone a one-off consultancy fee
• Engaging a contractor
• Saying thank you
• Letting someone help out informally

It’s giving them a seat at the table, legally and financially.

So if you’re doing it, make sure it’s strategic – not sentimental.

Why giving away equity too early can go wrong

There are lots of reasons founders regret early equity deals. Here are just a few:

1. No defined role or deliverables – They get shares for “helping” but then drift away or don’t deliver on what they promised.
2. Unfair proportions – You give away 30% of the company before it has any value, and later find you’ve diluted yourself too much.
3. Blocking future deals – Investors don’t like messy cap tables. If someone owns a chunk but isn’t active in the business, it puts them off.
4. Disputes – If there’s no shareholders’ agreement, you have no control over how that person behaves or exits.
5. Falling out – Relationships change. You may not want them involved later on, but you’ll need to buy them out.

Should you offer equity at all?

Sometimes, offering equity is the right call. But it should be based on value, not just a feeling.

✅ If the person is genuinely adding long-term value

✅ If they have irreplaceable industry knowledge or access

✅ If there’s no other way to afford their input

✅ And if they’re happy to stick around for the ride…

…then equity might be a fair way to reward and motivate them.

But before you say yes, explore the alternatives.

Consider: consultancy first, equity later

One of the cleanest ways to structure this is:

• Bring them in on a fixed consultancy agreement
• Pay them for their time (if possible), or defer payment
• Include clear deliverables and timeframes
• Offer an option to convert into equity later – if they perform

This is sometimes referred to as “sweat equity” but should still be governed by proper documents. You can even use a vesting schedule – for example, 10% equity granted in tranches over two years, or share options – which convert on a certain event or target being hit (eg when we hit sales of £1m, you’ll get some shares at £x a share).

What goes in the paperwork?

If you do decide to offer equity, don’t just shake hands or fire off an email. You need three things at a minimum:

1. A Shareholders’ Agreement

This sets out the rules between all the shareholders (including you). It should cover:

• What happens if someone leaves
• What decisions require shareholder consent
• How disputes are handled
• How and when shares can be transferred or sold
• Drag-along and tag-along rights
• Pre-emption rights on new shares

This is crucial if you want to avoid future deadlock or disputes.

More on shareholder agreements here.

2. A Share Subscription or Share Transfer Agreement

Depending on whether you’re issuing new shares or transferring existing ones, you’ll need a formal agreement confirming:

• The number of shares
• The value (even if they’re gifted or in lieu of services)
• Any conditions or restrictions
• Date and method of issue

3. A clear valuation or justification

Even if the company is early-stage, it’s worth recording why you’re valuing the shares as you are. This matters later if you want to issue EMI options, seek investment, or fall into dispute.

Is a separate loan agreement required?

Sometimes, these arrangements involve someone paying for services (like sorting a liquidation) or covering other costs and then receiving equity in return. This can blur into the territory of loans or investments.

You may need a separate agreement if:

• The “helper” has paid money up front for the business or assets
• They expect repayment if the deal falls through
• You want to keep equity and cash flows distinct

It’s often cleaner to keep investment and remuneration separate unless you’re deliberately combining them in a convertible loan or SAFE-style agreement (less common in the UK but not unheard of).

Watch out for red flags

Some early-stage entrepreneurs feel pressured into giving away equity to someone who is:

• Overpromising (“I’ll get you in front of the top players”)
• Underdelivering (no tangible input yet)
• Operating informally (“Let’s not bother with paperwork yet”)
• Applying time pressure (“We need to do this today”)

It’s worth pausing if you’re feeling rushed or unsure.

Ask yourself:

• Would I hire this person on salary?
• Would I trust them with business decisions?
• What happens if they vanish in 3 months?

If you’re already feeling nervous, they might not be the right co-owner.

And remember: equity is hard to undo

It’s a lot easier to give shares than to get them back.

If you gift someone equity now, but don’t have any buy-back mechanism in a shareholders agreement, you may need to offer a cash settlement later – even if they’ve stopped contributing.

This is why the shareholders’ agreement is so vital. It can include:

• Good leaver / bad leaver provisions
• Buy-back rights
• Valuation mechanisms
• Forfeiture clauses if someone doesn’t meet expectations

Without those terms, you’re stuck with them – even if things go sour.

Conclusion: Be generous, but not reckless

Starting a business is tough, and having the right people around you matters. But don’t confuse gratitude with obligation.

Equity should be earned, not handed out like party bags. And any deal should be properly documented, with clear terms and boundaries.

If someone’s really adding value, they’ll understand the need for proper paperwork. If they push back or suggest you’re being too formal – that’s your cue to run a mile.

As always, if you’re unsure, speak to a solicitor. I regularly help founders put proper frameworks in place that reward contributors fairly, while protecting the business long-term.