It appears this was in Malaysia.

A written agreement can help ensure that the dispute never even gets before a judge.

Oral agreements are legally binding as well here in Iceland, but good luck trying to have word-against-word stand up in court.

What rayiner said, plus I will point out that the other major point of written contracts is to force a "meeting of the minds." Basically, when someone offers you "significant equity" did they mean 1% or 10%? Is there vesting? On what schedule?

Without this and other critical information in writing, there is a huge chance you have totally different understandings of what the other party had in mind. This isn't to say they are trying to screw you, simply that there are ranges of "normal" for all of the important bits usually governed by an employment contract. If you don't have it in writing, your best hope is that yet another party (a judge) will impose her understanding of the terms. Not what you want.

Oral contracts are only binding if you can prove it happened, and even then not always. In the absence of a detailed written contract on the IP, the OP still owns it. Personally, I'd have probably let it roll a little longer and used that for leverage to get what was promised, but I don't blame him for walking away. It's a pretty good bet he figured out what the original tech guy already knew.

Everyone? Why would you not have one? If you're cofounders shooting ideas, just write down what you've agreed on a napkin at least before writing code.

If you're joining as an employee, even more reason to have an agreement in place, for both parties protection. Otherwise the code you write doesn't even belong to the company, as shown in this case.