Co-founder equity in Europe vs the US: what founders need to know

Default economic and governance rules vary significantly by country, state, and entity form. An informal partnership, an LLC, and a corporation can produce different results even in the same jurisdiction.

The same founder relationship can therefore produce different outcomes depending on where and how it is formed.

Most equity advice assumes you’re building in the US. And most of it is good advice, within that context. But the legal defaults that shape co-founder equity vary dramatically across borders, and founders building in Europe, or considering it, face a different set of rules than what Y Combinator blog posts prepare you for.

I’ve spent the past few months mapping partnership laws across all 50 US states and 32 European countries. The differences are more interesting than I expected.

Cross-border legal warning: This is general information, not legal or tax advice. Partnership defaults, entity statutes, tax rules, and matrimonial-property regimes can change and depend on facts such as domicile, residence, marital agreements, and entity form. Verify the result with local entity, tax, and family-law counsel in every relevant jurisdiction.

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The default split problem

Many U.S. general-partnership statutes use equal profit sharing as a default, but the applicable rule depends on the state, entity classification, and agreement. The details vary by state.

That default can diverge sharply from contributions: one partner may provide capital while another provides labor. The governing agreement is the place to specify a different economic arrangement.

Europe is messier, and in some ways more interesting.

Across Europe, default rules vary significantly by country and entity form. Regimes may use equal, capital-linked, contractual, or hybrid approaches, and translations or simplified summaries can conceal important qualifications.

The practical takeaway is not to extrapolate from one jurisdiction or entity to another. A founder moving countries must verify the specific default, including how local law distinguishes ownership, profits, losses, voting, and capital accounts.

What matters is knowing which formula applies to you. And in both cases, writing your own agreement is better than relying on any default.

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Formation costs and minimum capital

Starting a company in the US is cheap. An LLC in most states costs $50 to $500 to form, requires zero minimum capital, and doesn’t need a notary or a lawyer.

Europe is a different story.

The range within Europe is striking. You can incorporate in Estonia for under €500 with practically no minimum capital, entirely online. Or you can incorporate in Switzerland for CHF 20,000+ minimum capital plus mandatory notarization. Same continent, wildly different barriers to entry.

Germany’s €25,000 GmbH requirement surprises a lot of American founders. There’s a lighter option, the UG (haftungsbeschränkt), which lets you start with as little as €1, but you’re required to set aside 25% of annual profits until you reach the full €25,000. It’s a workaround, not a shortcut.

For founders deciding where to incorporate, formation cost is one factor. Tax treatment, access to talent, and proximity to customers usually matter more. But it’s worth knowing that the “just form an LLC” simplicity of the US doesn’t translate to most of Europe.

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Community property: the equity risk nobody talks about

Matrimonial-property law is one of those subjects founders rarely consider until separation, divorce, or death makes it relevant. It cannot be reduced to a single community-property rule.

In the US, 9 states use community property rules (California, Texas, Washington, Arizona, Nevada, New Mexico, Idaho, Louisiana, and Wisconsin). If you start a company while married in California and then get divorced, your spouse may have a claim to half the business.

Across Europe, regimes vary significantly and include community of acquisitions, deferred community, participation in accrued gains, separation of property, and other country-specific systems. Classification can also depend on elections, marital agreements, domicile, and conflict-of-laws rules.

This can have real implications for equity, its appreciation, and distributions, but ownership on the cap table does not by itself answer a spouse’s rights. Local family-law counsel should analyze the founder’s facts and any pre-nuptial or post-nuptial agreement.

Married founders should ask local family-law counsel whether a pre-nuptial or post-nuptial agreement is appropriate and enforceable; the answer varies by jurisdiction and circumstances.

You can dig into the specifics for any country in our European partnership law directory, and for any US state in our state-by-state directory.

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Vesting works differently

In the US, founder vesting follows a fairly standard template: four-year vesting with a one-year cliff, often with an 83(b) election filed within 30 days. The 83(b) lets founders pay taxes on the grant-date value of unvested shares rather than the (hopefully much higher) value when shares vest. It’s one of the most important and least understood tax tools for US founders.

There is no EU-wide equivalent to the U.S. 83(b) election. Several countries have analogous elections, deferrals, or startup-equity regimes, but eligibility and consequences are country-specific.

France created the BSPCE (bons de souscription de parts de créateur d’entreprise) specifically for startup stock options. Under the right conditions, gains are taxed at roughly 31% (12.8% income tax plus social contributions), which is significantly better than France’s standard income tax rates. But the qualifying conditions are strict.

Germany is notoriously difficult for employee equity. Until the Zukunftsfinanzierungsgesetz (Future Financing Act) passed, employees could face a tax bill on paper gains from shares they couldn’t yet sell. The new law defers that tax event, which is progress, but the regime is still more complex than the US.

Estonia takes a different approach entirely: companies pay 22% tax only on distributed profits. Retained earnings aren’t taxed. This makes Estonia attractive for reinvesting startups, but it doesn’t solve the employee equity taxation problem in the same way the US 83(b) does.

The broader pattern is variation, not a uniformly better or worse result. Founders moving between jurisdictions cannot assume that an election, vesting schedule, or tax treatment carries over.

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What happens when a partner leaves

In the US, the difference between old and new partnership law matters here. About 40 states have adopted RUPA (the Revised Uniform Partnership Act), which allows a partnership to continue after a partner’s departure. The remaining states still use the original UPA, where a partner leaving can trigger automatic dissolution of the entire partnership.

In those older UPA states, a co-founder walking out the door doesn’t just leave. They dissolve the company.

In Europe, most countries allow partnerships to continue after a partner exits, but the withdrawal notice periods and buyout mechanisms vary. Germany requires six months’ notice. Switzerland requires six months’ notice at the end of a business year. Some countries like Czech Republic allow withdrawal only at the end of the accounting period with six months’ notice.

For startup entities (GmbH, SAS, BV, Ltd), the picture is different. Share transfers in many European countries require notarization, which adds both cost and friction. In Germany, Italy, Austria, and Switzerland, you can’t transfer shares with a simple stock purchase agreement like you would in the US. You need a notary, which means scheduling appointments, paying fees, and often involving lawyers.

This friction is a double-edged sword. It slows down messy departures, which can protect remaining founders. But it also slows down clean exits, which can trap founders in partnerships that aren’t working.

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Entity flexibility

US founders have it relatively simple. Most startups choose between an LLC (for flexibility and pass-through taxation) or a C-Corp (for raising venture capital). Delaware is the default jurisdiction for VC-backed startups, regardless of where the founders actually live.

Europe doesn’t have a Delaware. Each country has its own entity types, its own rules, and its own advantages. There’s no pan-European startup entity, though the EU Inc. proposal is trying to create one.

A few standout entity types worth knowing:

France’s SAS (Société par Actions Simplifiée) is probably the most founder-friendly European entity. The minimum capital is €1, there’s no notary required, and the articles of association can be customized extensively. It’s closer to the flexibility of a US LLC than anything else in continental Europe.

Estonia’s e-Residency program lets non-residents incorporate and manage an Estonian company entirely online. Combined with the distributed-profit-only tax system, it’s attractive for remote teams and digital businesses.

The UK’s Ltd is cheap, fast, and familiar to English-speaking founders. Minimum capital is £1, formation takes a day, and the legal system is well-established for startup disputes. Post-Brexit, it’s no longer an EU entity, which matters for EU market access.

Germany’s UG (Unternehmergesellschaft) lets you start with €1 instead of the GmbH’s €25,000, but requires you to retain 25% of profits annually until you reach full GmbH capitalization. It’s a compromise between accessibility and the German preference for well-capitalized companies.

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The EU Inc. proposal

Worth a brief mention: the EU Inc. initiative is a proposal for a standardized pan-European startup entity. The idea is to create a single company form that works across all EU member states, with harmonized rules on incorporation, share classes, and employee equity.

If it passes, it would be a significant shift. Right now, a startup in Berlin and a startup in Paris operate under fundamentally different legal frameworks, even though they’re both in the EU single market. EU Inc. would create something closer to the US model, where a Delaware C-Corp works the same regardless of which state you’re in.

It’s still in the proposal stage, and EU-wide legislation moves slowly. But it signals that European policymakers recognize the friction that fragmented company law creates for startups.

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What this means for your equity split

Whether you’re in the US or Europe, the core lesson is the same: default rules are designed for generic situations, not yours.

Both U.S. and European results vary with jurisdiction and entity form. Default rules may not reflect what you and your co-founder actually agreed to contribute.

A few practical recommendations:

If you’re a US founder considering Europe: Don’t assume your LLC operating agreement template works overseas. Entity types, formation requirements, and default partnership rules are different. Research the specific country before incorporating.

If you’re a European founder: The proportional-to-capital default in countries like France and the Netherlands can be just as problematic as the US equal default. If one founder contributes all the capital but the other does all the work, the capital-proportional split is just as unfair as a 50/50 split would be.

If you’re building across borders: Community property rules, vesting taxation, and share transfer requirements are the three areas most likely to surprise you. Get local legal advice for each jurisdiction where you have founders or key employees.

For everyone: Track contributions. Whether you use a dynamic equity model or negotiate a fixed split upfront, the conversation about who’s contributing what should happen early and be revisited regularly. The equity calculator can help you model fair splits based on actual inputs rather than assumptions.

The best equity agreement is the one you wrote before you needed it. The second best is the one you write today.

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Frequently asked questions

Do European partnership laws apply if I incorporate as a GmbH or SAS?

Partnership defaults (like equal or proportional profit sharing) apply to general partnerships, not to limited liability companies like GmbHs, SAS, or BVs. Once you incorporate, your articles of association and shareholders’ agreement govern equity distribution. But many early-stage teams operate as informal partnerships before incorporating, and that’s when defaults apply.

Can I use a US-style vesting schedule in Europe?

Vesting terms must comply with the governing entity, employment, and contract law. There is no EU-wide counterpart to the U.S. 83(b) election, but several countries have analogous elections or regimes. Tax treatment is country- and instrument-specific, so verify it with local counsel before granting equity.

Which European country is best for startup incorporation?

It depends on what you’re optimizing for. Estonia for low cost and digital-first formation. France for entity flexibility (SAS). Ireland for English-speaking common law and EU access. UK for speed and simplicity (though no longer in the EU). Germany and the Netherlands for access to deep talent pools and capital, despite higher formation costs.

How does community property affect my startup equity in Europe?

Matrimonial-property regimes vary substantially and can include community of acquisitions, deferred community, participation in accrued gains, separation, and other systems. A spouse may have claims affecting equity or its value, but the result depends on local law and the founders’ circumstances. Verify with local family-law counsel; a marital agreement may help where lawful and appropriate.

Is dynamic equity used in Europe?

Yes, though it’s less common than in the US. The Slicing Pie model has users worldwide, and contribution-based equity works under any legal framework. The key difference is that some European countries require notarization for share transfers, which adds friction to periodic equity adjustments. Many European teams use dynamic equity informally during the pre-incorporation phase, then freeze the split when they incorporate.

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Building across borders? Start by understanding the defaults that apply where you are. Our US state directory covers all 50 states, and our European directory covers 32 countries. Both are free, detailed, and designed for founders, not lawyers.