How bad is the decision to work as a co-founder without legal contracts?
grellas: I have represented founders as a startup lawyer in Silicon Valley since 1984. I have done a short write-up on this issue focusing on the risks from a company standpoint of relying on early-stage verbal agreements (http://www.grellas.com/faq_business_startup_009.html).From your standpoint, without proper documentation: (1) your biggest risk is getting ripped off for your labor; (2) you would have leverage in that any IP you would develop would belong to you and not to the company until you assigned it by formal documentation; (3) if you did get ripped off, you could bring a legal claim either for breach of a verbal agreement or for fraud; (4) such claims are difficult and expensive to bring and thus not practical in most cases; (5) a lawsuit almost always leaves you worse off than does almost any other alternative; (6) therefore, get some reasonable understanding up front of what you can expect to get from your efforts and use at least informal means to document it.You may or may not learn from this experience, depending on whether the other founders bring you into their inner circle.Finally, I have seen this pattern work just fine very often in spite of the legal risks. In most of the good cases, though, the founders know each other and have a relationship. The cases where most of the problems arise are ones in which the founders do not previously know each other (what might be called opportunistic teaming). From your description, and from the length of time they want you to do work without documentation, I would say your case falls in the higher-risk category. Your legal downside would very likely be limited to losing your labor while getting cheated of any promised equity. The company has the greater legal downside from failing to document, mostly relating to its IP.