Founder Agreement is a legal contract signed between all the co-founders of a company. It states all the responsibilities, ownership, and initial investments made by all the co-founders of the company. It also states the time period for which a founder has to be with the firm for their shares to fully vest. Founder agreement covers all the aspects that the founders undertake, including the consequences of their departure or death.
What is the need for a Founder’s Agreement?
No matter how the founder and co-founders feel about each other a founders agreement is necessary, as the reality can only be found when the words come to actions. A written founder’s agreement must be drafted at the time of setting-up an organization after consulting an expert. A founders agreement helps in the following aspects:
Essentials of a Founder’s Agreement-
A Founder Agreement is one of the most important documents that form the base of any organization. It is very important that it is free from all the possible loopholes that might be exploited.
Let us have a look at some of the inevitable clauses that must be present in a founder’s agreement;
[NOTE- Apart from these other clauses may be added based on the needs and requirements of the business and co-founders]
What are the advantages of a Founder’s Agreement?
What is the process to make a Founder’s Agreement?
Making a founder agreement is not a very complex task and an agreement can easily be drafted right at the time of starting a company;
A Founders’ Agreement is an official contract that is signed between all the co-founders of a firm. This document states all the responsibilities, ownership, and initial investments made by each of the founders of the company.
The purpose of the agreement is to make the understanding the co-founders have regarding the functioning of their company and relationship and obligation between co-founders legally binding through a formally written agreement.
It provides for business definition, percentage or number of shares which is held by each co-founder, the extent of each founder responsibility, issue regarding the firing of any founder, a non-compete clause, confidentiality, etc.
Founders Agreement should ideally be signed on a Bond Paper and have a copy for each of the co-founder.
A Founder Agreement needs to be drafted by professionals to ensure that no important points are missed. Also, Founder Agreement needs to address few major issues like investment by each founder, full time and part time involvement of co-founders amongst other things.
It is essential to enter into such agreements to solve issues in case any difficulty arises. In absence of an agreement to this effect, one partner may walk away and use Knowledge of the business and know-how for competition.
a. It Clears the Air on many matters that may be undiscussed between the co-founders
b. It gives an opportunity to early team members to discuss the important matters and clearing their doubts and having a better relationship.
c. Further on it defines the roles of all the co-founders and early team members.
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