Founders' Agreement Template
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For most entrepreneurs, the idea of negotiating a business agreement with someone is scary enough without having to worry about the details of what will happen if one party decides to leave or takes another partner.Â
Founders’ agreements are key to resolving disputes before they arise.Â
The founders’ agreement can include provisions for this, as well as who gets sole ownership of which intellectual property (IP) and how any IP created during the course of the relationship will be split between you two.
What is a founders’ agreement?
The founders’ agreement is a document that defines how the co-founders will share the ownership of the company. It should include not only their equity percentages but also voting rights, buy-sell provisions, board of directors’ membership and other important decisions.
More than one founder can be involved in creating this document. It is also possible to enter into it before you start your company.
Why do we need a founders’ agreement?
The founders’ agreement aims to prevent disagreements later on by clearly stating what each person wants out of the company. It states how much equity each person will receive, how long it takes for them to vest, and who has what type of decision-making power.
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Founders’ agreements are the most important document you’ll sign, and one that requires a lot of time and consideration. Founders’ agreements can be used to cover issues such as:
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- The future sale of shares
- The rights and responsibilities of each founder
- Resolution of disputes between founders
- The division of profits and losses amongst the founders (if any)
- How money is raised for the company
- What happens if there is a conflict between two or more parties?
- Who gets what portion?
- What’s your exit strategy?
All these questions must be considered when making your founders’ agreement. The implications will affect every aspect of your startup.
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What should be included in a founders’ agreement?
It’s essential to add clauses which allocate money and responsibilities if one partner leaves, or if they disagree on how to handle legal matters like intellectual property disputes.
Founders need to agree on whether any profits should be reinvested into the business or distributed among themselves. The cofounders’ agreement should contain:
- Roles and responsibilities of each founder
- Salary and equity allocation of each founder
- Clear description of the business
- Ownership details in the startup
- Information regarding the funding details both by investors and founders
- Exit strategy of the startup
- Details regarding solving possible disputes in future
- Other provisions like assignment of property rights
Founders’ Agreement Template
To wrap things up
If you’re a small startup with a co-founder, it’s very important that you have a written founders’ agreement. It doesn’t take that much time to create one and can ensure that your contribution is valued and that there isn’t any confusion going forward.
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It protects both parties and ensures you are all on the same page regarding how the business will operate. If you need help drafting this agreement, click here to generate your own.