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This paper, instead of focusing on agency cost, analyzes the role of risk-sharing under problems of enforceability (default) to explain the optimal determination of capital structure. Optimal contract structure presents equity and debt. Moreover, this pa per accounts for both (i) equity simultaneously held by insiderentrepreneurs and outside investors as well as for (ii) entrepre neurs resorting to debt before investing 100 percent of their wealth in their ventures. These results provide a more accurate represen tation of reality within Optimal Security Design.