What is a Founders’ Agreement (for Three or More Individual Founders)?
Whether you’re hoping to go public or starting a modest company with a few close friends, a Founders’ Agreement is a great first step for your business.
It will help you provide the foundation to your business by outlining expectations, guiding decision-making, and reducing risk.
In one simple document, you’ll be able to establish important rules that will set the stage for how you will run your business. Without a clear understanding of how you will work together, things can get messy quickly.
Drafting a Founders’ Agreement involves envisioning a venture, sharing passions and ambitions, negotiating, experimenting with business-cases for various issues, and making projections.
Key points included
When drafting a Founders’ Agreement, it is important to focus on a number of key clauses, in particular:
- Project description;
- Capital contribution of each founder;
- Percentage of shares to be held by each founder;
- Vesting of shares;
- Remuneration of founders;
- Role of each founder;
- What happens when one founder wants to exit the company and what happens to his or her shares;
- Whether the founders are restricted from competing with the business of the company after they exit; and
- How the company’s confidential information and intellectual property will be protected.