Meaning
Verbal agreements regarding future equity grants or compensation remain common despite the preference for written documentation. An oral promise often occurs during the early stages of a startup when founders make informal commitments to advisors or early hires. While these statements carry social weight they are difficult to enforce legally without supporting evidence.
The lack of a written contract creates uncertainty for both the company and the individual.
Spoken Obligation
Reliance on a spoken agreement can lead to disputes when the company reaches a substantial valuation. The oral promise is often remembered differently by the two parties involved. One person might recall a promise of a fixed percentage while the other remembers a promise of a specific number of shares.
This disagreement can result in expensive legal battles during a liquidity event.
Evidence Requirement
Proving the existence and terms of a spoken agreement requires witnesses or corroborating emails. An oral promise is often challenged by the board or new investors who only recognize written obligations. Without a paper trail the individual may find it impossible to claim their promised stake.
Enforceability Risk
Legal systems generally prefer written contracts for equity-related matters. The oral promise is frequently deemed unenforceable legally if it cannot be performed within one year.
