Founders' Agreement Template
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.
Founders’ agreements are key to resolving disputes before they arise.
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 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?
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