Meaning
Spoken commitments to provide ownership shares in a company create a high risk of future conflict. The unwritten equity promises often happen during the early days of a startup when founders are focused on growth. This lack of a formal record leads to disagreements about the size of the share or the conditions for receiving it.
Verbal Obligation
A person who relies on a spoken offer may find it difficult to prove their right to the shares. While unwritten equity promises feel solid, they have no legal standing.
Proof Difficulty
Demonstrating that a promise was made requires finding emails or witnesses who can testify to the conversation. In cases involving unwritten equity promises, the claimant must show they performed work in exchange for the ownership. This task is hard because memories fade and the people involved may have different ideas of what was said.
Risk Mitigation
The only way to resolve the uncertainty of a spoken deal is to move it into a signed contract. Leaving unwritten equity promises as they are creates a potential liability that can stop a company from getting investment. This cost in attention and money is a direct result of failing to document the initial agreement.