Co-founders' Agreement

A Founders' or Co-Founders Agreement is a legal agreement signed by all company's co-founders. This document outlines each of the company's founders' roles, duties, ownership, responsibilities and first investments.
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A founders' agreement, which lays out the duties and tasks of each of the co-founders, is recommended to set up at the incorporation stage of an enterprise.

Key Terms of the co-founders Agreement
  • Ownership of equity: The share of equity ownership of each of the company's co-founders is one of the most essential conditions of the Agreement. The stock ownership of the company's co-founders is decided by a few criteria, including monetary investment, expertise, existing intellectual property, know-how, and industry network.
  • Vesting: One of the most essential things to remember when creating the Agreement is to include a method for dealing with a circumstance in which one of the co-founders leaves or is fired from the firm.

    A vesting mechanism will be included in the Agreement to specify how the shares will be picked up by the founders.
    1. Time Based Vesting: The shares owned by the founder will be vested in proportion to the time spent by the founder in the firm under time based vesting. If a founder decides to leave the firm before the end of his tenure, the remaining shares of that founder must be returned to the company.
    2. Milestone Vesting: When the company achieves the milestones set forth in the Agreement, the company's shares vest in milestone vesting. If a founder quits the firm before the milestones are met, the shares that were set aside for him do not vest in him.
  • Roles and responsibilities are defined: Each of the company's co-founders' duties and obligations should be explicitly defined in the agreement.
  • Restriction on shares transfer: The Agreement may include a lock-in clause that specifies the number of years until the agreement expires during which the co-founders in the company cannot transfer or sell their shares to anyone else.
  • Intellectual property Protection: The co-founders' intellectual property rights are allocated to the corporation and do not remain the property of the co-founders.
  • The founders' value additions: The co-founders may provide value to the company by bringing in intellectual property rights, technical know-how, marketing rights, or other similar assets. Co-founders are sometimes given shares in exchange for their contributions to the company's worth. So that there is no uncertainty, the Agreement should clearly state the number of shares to be issued, the percentage shareholding, and the method of valuation of such shares.
  • Non-compete: It should be agreed in advance that while a founder is a member of the firm, he or she will not engage in activities that are incompatible with the organization's mission.
  • Confidentiality: A secrecy clause in the co-founders' agreement makes the founders responsible for protecting critical business information.

Benefits of Co-founders' Agreement


Key Deliverables

  1. 1st Agreement draft
  2. Final executed agreement

Co-founders' Agreement

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Frequently Asked Questions

The goal of a founders' agreement is to avoid any future ambiguity regarding the company's administration and business relationships between the founders. The agreement identifies potential issues and hazards, as well as procedures for dealing with them if they occur.
During the initial stage like incorporation of the company, a founders agreement is drafted. As it is better to define the roles and responsibilities of the founders from the initial stage itself.
Yes, founders agreement is legally binding, a founders agreement is drafted considering all the legal requirements and clauses of the law.