Co-founding a company can be an exciting and fulfilling pursuit. It is important to negotiate and draft clear legal agreements at the beginning stages of a startup in order to prevent lawsuits between founders from arising later. Lawsuits between founders most commonly result from ownership and equity disputes. Conflicts also may arise as a result of employee misconduct, breaches of fiduciary duties, allegations of misappropriated company funds, and disputes over intellectual property rights.

Many startup founders launch a startup based on a shared business vision and overlook legal formalities. Motivated by a compelling idea and desire to grow quickly, startup founders may skip over unambiguously detailing company ownership, decision-making authority, and other structural arrangements in written form. This tends to especially be the case when the co-founders are close friends and rely on a sense of mutual trust. Co-founders may also find it awkward to push for formalized legal documentation at the early stages of a startup. Postponing such conversations risks waiting until it is too late and conflicts have already reached a boiling point.

Ownership conflicts typically entail how founder ownership percentages change when new equity is raised or new partners join the company. Legal documentation should provide clarity on the startup’s capital structure and how share valuations will be impacted by corporate events such as acquisitions or new capital raising transactions. Valuation methodologies should be clearly defined by formulas or other metrics. Conflicts can also arise over equity vesting schedules and how to deal with a founder departing the company early.

Litigation among founders can be a huge distraction for a growing company. It can result in leadership disfunction and derail business partnerships. In addition to eroding relationships, lawsuits between co-founders can be costly. In some cases, suing co-founders have received multimillion dollar settlements in such lawsuits.

Payment processing company Square and its co-founders faced a lawsuit from Robert Morley for patent infringement and breach of fiduciary duty. Professor Robert Morley alleged that he made valuable contributions to the invention to Square’s portable credit card reader, yet was subsequently excluded from the business. Mr. Morley received a $50 million settlement pay.

Snap, the social media app that allows users to send disappearing messages, also dealt with a founder lawsuit. Frank “Reggie” Brown, one of Snap’s three co-founders, sued the other co-founders for unfairly ousting him from the company without proper compensation. Mr. Brown received a $158 million settlement.

Whitney Wolfe Herd, the CEO of Bumble, sued Tinder and its co-founder Justin Mateen for sexual harassment and discrimination as well as for removing her co-founder status. The case resulted in a multimillion-dollar settlement for Ms. Herd.

Startup founders should select skilled legal counsel early on to negotiate and draft legal agreements for founders. Startups can scale quickly and seemingly benign conflicts can eventually turn into disagreements that spiral into litigation. Experienced legal counsel can help identify shortcomings in contractual provisions and draft dispute resolution mechanisms. They also understand how to draft clear legal terms in a manner that still provides the founders with operational and strategic flexibility as the business evolves.