Overview of a Founders’ Agreement (for Three or More Individual Founders)

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.

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