Free Founders’ Agreement Template
Embarking on a business journey with co-founders can be exhilarating yet nerve-wracking. It’s an exciting period filled with optimism, but clarifying your venture’s foundations from the start is essential.
A founders’ agreement is instrumental, the unsung hero in your startup’s early stages.
What is a Founders' Agreement?
A founders’ agreement is a legally binding document that outlines each founder’s roles, responsibilities, and rights within the business. Think of it as a blueprint for your startup’s operations and a guide for potential dispute resolution.
It’s not just a mere guide, however.It’s a crucial element that navigates the course of your business, setting the ground rules and establishing the ‘what ifs’ and ‘what when’s.’ It’s like having a pre-emptive discussion to avoid misunderstandings and conflicts further down the line. This agreement articulates each founder’s initial investments, ownership percentage, decision-making powers, and what happens if a founder decides to leave or cannot continue in their role.
Without a founders’ agreement, you expose your startup to potential problems. You might encounter disagreements over decision-making, ownership interest, or even the direction of your venture, which can significantly derail your progress. In the worst-case scenario, the absence of a founders’ agreement can even lead to the dissolution of your business.
So, as you embark on your entrepreneurial journey, don’t let excitement cloud your judgment. Protect your business, relationships, and future success by crafting a comprehensive contract. After all, when building a business, it’s better to be safe than sorry.
When to Use a Founders’ Agreement Template
The best time to draft a founders’ agreement is at the inception of your business, as early as when the initial idea is being formed. The discussions around an agreement help shape the organization’s foundation, align the founders’ visions, and provide clarity. Creating such an agreement at the initial stages ensures that you and your co-founders can move forward on solid footing.
While it might seem counterintuitive to think about potential conflicts, departures, or disputes while you’re still in the euphoria of starting a venture, it’s a prudent step. Early discussions on critical aspects can help avoid potentially disruptive misunderstandings later. Remember, the aim isn’t to anticipate failure but to build a robust framework to withstand future challenges.
Furthermore, as you evolve from the idea phase to the execution phase, the agreement can serve as a guidepost, ensuring that every decision aligns with the agreed-upon principles and goals. The agreement can be beneficial during rapid growth or pivot, where the initial vision might get blurry.
Moreover, an early agreement is crucial in setting up the company’s capital structure, defining the value each founder brings, and ensuring fair founder equity distribution. A proactive approach can prevent disputes related to ownership structure, financial commitments, and profit-sharing at later stages.
An early founders’ agreement also instills a sense of seriousness and commitment among the founders. It signals potential investors, customers, and employees that the founders are aligned and the business is built on a firm foundation.
It’s also worth mentioning that drafting an agreement is more than just a one-and-done task. It’s a living business document that should evolve with your company. As the business grows and new scenarios arise, revisit the agreement to make necessary amendments. This will ensure that the agreement remains relevant and serves its purpose effectively.
DISCLAIMER: We are not lawyers or a law firm and we do not provide legal, business or tax advice. We recommend you consult a lawyer or other appropriate professional before using any templates or agreements from this website.
Benefits of a Founders’ Agreement
A well-crafted agreement offers a host of benefits. Here are some that stand out:
- Clarity: It provides clear-cut roles and responsibilities for each founder, minimizing potential conflicts over decision-making or role ambiguities. This clarity goes beyond task division and creates a shared understanding of the company’s vision and strategic direction.
- Conflict Resolution: It outlines the process to follow in case of disagreements or disputes, thereby ensuring smoother conflict resolution. With a solid plan, you can avoid unnecessary legal tussles and maintain a more harmonious working relationship.
- Founder Equity Ownership: The agreement clearly defines each founder’s stake in the business, leaving no room for misinterpretations later. It spells out what each individual stands to gain, which can also be a powerful motivator as you work towards your shared goals.
- Protection: It protects the company’s and founders’ interests if a founder leaves or cannot continue in their role. This is especially crucial in the early stages when your startup is most vulnerable to disruptions.
- IP Security: A founders’ agreement can help protect your startup’s intellectual property by defining who owns what. This could prove invaluable in today’s competitive landscape, where ideas and innovation are paramount.
Beyond these practical benefits, a founders’ agreement also instills a sense of professionalism and commitment. It signals to potential investors, partners, and employees that you mean business.
In essence, a founders’ agreement is the cornerstone of your business, fostering transparency and accountability while setting the tone for your working relationship. It’s a small investment of time and effort upfront that can save significant headaches and heartaches in the future. Remember, it’s not just about avoiding potential pitfalls – it’s also a blueprint for success, helping align your team behind a common vision and shared goals.
What Should a Founders’ Agreement Include?
Creating a comprehensive founders’ agreement requires thoughtful consideration. It should cover several key elements that outline the backbone of your startup and the relationship between its co-founders. While the precise contents may vary depending on your business specifics, here are some indispensable sections:
The agreement should include each founder’s personal information, such as full name, contact information, and address. This might seem like a no-brainer, but you’d be surprised how often people overlook the basics.
Correct identification is paramount to a legally binding contract. Plus, having everyone’s contact information in one place can be incredibly handy during day-to-day operations or any emergency. These seemingly simple things can make a world of difference in how smoothly your startup operates.
This part should encapsulate a clear description of the business idea and objectives. While you don’t have to elaborate on every nitty-gritty, provide a brief overview of the project, including its purpose, key services or products, and target market.
This section provides the context for the agreement and aligns everyone on the business’s direction. Moreover, an exhaustive project description can help founders re-align themselves to the core mission during times of strife or confusion, acting as a guiding beacon.
It’s crucial to clarify how much each founder will contribute to the business’s initial capital. This includes monetary and non-monetary contributions, such as time, effort, or specific skills. Outline these contributions clearly and specify how they’ll translate into equity shares. This helps in avoiding misunderstandings or disputes over ownership and equity down the line.
It’s also worth mentioning how future capital injections will be handled. Would the contributions affect the equity distribution, or will they be treated as loans? Addressing these issues in advance can save you countless headaches later on.
The founders’ agreement should also lay out your startup’s business structure. Are you forming a partnership, an LLC, or a corporation? Your business structure will significantly impact aspects like taxes, liability, and management, so make sure you’ve thoroughly researched your options before committing them to paper.
Beyond just stating the structure, including a brief rationale for the choice is beneficial. This serves as a record of your decision-making process and can be beneficial if you decide to pivot your business structure in the future.
Management & Voting
The decision-making process can be a contentious area in startups. That’s why it’s crucial to articulate how management and voting will work within your venture. You should specify who has the authority to make decisions (operational, strategic, and financial) and how voting rights are distributed.
Is it a simple majority that rules, or do some decisions require a supermajority or unanimous vote? Is voting power directly proportional to share ownership, or is there a different arrangement?
The intellectual property (IP) clause is one of the most vital elements of a founders’ agreement. Intellectual property is often the lifeline of a startup, encapsulating everything from patents and proprietary technology to logos and brand names. Here, you must delineate who owns what, along with rules for its use and protection. In many instances, all intellectual property is assigned to the company to prevent future disputes, especially if a founder leaves.
Confidentiality & Non-Compete
A confidentiality clause, a Non-Disclosure Agreement (NDA), is essential for protecting sensitive company information. This section should outline the obligations of each founder regarding company secrets, customer lists, and business strategies.
Similarly, a non-compete clause may be desirable to prevent founders from starting a competing business or working for a competitor within a certain period and geographic range after leaving the company. Be mindful that the enforceability of non-compete clauses varies based on local laws and the specifics of the provision.
Resignation & Removal
No one wants to envision a break-up while things are rosy, but it’s prudent to anticipate potential exits. This section should provide a clear process for a founder’s voluntary resignation or involuntary removal. It may include details about notice periods, severance packages, and the repurchase of the departing founder’s shares.
Terms & Conditions
The terms and conditions section forms the crux of your agreement, detailing your startup’s overall governing rules and guidelines. It should incorporate everything from conflict resolution procedures to amendment protocols for the contract. Being explicit about these terms, you create a procedural manual for navigating your company’s journey.
Finally, all founders must sign your agreement for it to be legally binding. With Signaturely’s e-signature solution, this process becomes a breeze. You can sign, send, and store all your important agreements digitally in one secure place, saving you time and reducing your paper trail.
While this guide provides an overview, every startup’s needs are unique. Be sure to consult with a legal expert before finalizing your agreement.
This document will serve as the guiding light for your venture’s course, so invest the necessary time and resources to get it right.
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Founders’ Agreement Template
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How to Write a Founders’ Agreement
Embarking on the journey of writing a founders’ agreement may seem daunting initially, but it becomes significantly more manageable with the right preparation and clarity. Start by holding comprehensive discussions with your co-founders to understand and agree upon the key components of your business.
While you can draft the agreement yourself, using a reliable template is often the most straightforward way to ensure you cover all the necessary aspects. Signaturely offers a selection of well-crafted, legally sound templates that are easy to customize per your needs. Even though using a template simplifies the process, seeking legal advice to ensure all aspects of your agreement are legally sound and serve your business’s unique needs effectively is crucial.
FAQs About Founders’ Agreements
Below are a few of the most frequently asked questions about founders’ agreements.
Is a founders’ agreement legally binding?
Yes, a founders’ agreement is a legally binding document. However, to enforce its legal status, it must meet certain criteria, such as having a clear offer and acceptance, consideration (something of value being exchanged), and mutual written consent to enter into an agreement.
How do I create a founder agreement?
Creating a contract for founding your company involves discussing and agreeing on key business aspects with your co-founders (including intellectual property), writing down these agreements, and signing the document. Using a template from Signaturely can make this process more streamlined.
How do you structure a founders' agreement?
A founders’ agreement typically includes sections on personal information, project description, capital contributions, business structure, management and voting, related intellectual property, confidentiality and non-compete, resignation and removal, terms and conditions, and signatures.
How long is a founders’ agreement?
The length of a founders’ agreement can vary widely depending on the complexity of the business and the number of founders. Generally, it can range from a few pages to more than twenty.
What is the difference between a founder agreement and a shareholder agreement?
While both documents are essential in a startup, they serve different purposes. A founders’ agreement outlines the founders’ roles, responsibilities, and equity.
In contrast, a shareholder agreement manages the relationship between the company and its shareholders, detailing the rights and obligations of the shareholders.
How much ownership should a founder have?
The ownership distribution among founders depends on various factors like their capital contribution, time commitment, business idea origination, and more. It’s subjective and should be mutually agreed upon by all founders.
What You Need to Remember About a Founders Agreement Template
A founders’ agreement is not just a formality; it’s a significant foundation for your venture. As you set out to write yours, remember that the template you choose is just a guide. Each startup is unique, and your agreement should reflect that. Be thorough in defining the elements of your business, from project description to capital contributions, business structure, and beyond.
Keep in mind that clear, open communication among other founders is key. Ensure that each party understands and agrees with every term. Remember to seek legal advice to ensure the document’s effectiveness and legality. Lastly, don’t underestimate the power of a robust e-signature solution like Signaturely. It secures your document and streamlines the process, saving you precious time and effort— an invaluable resource for any entrepreneur.
Founders Agreement Template
- This Founders Agreement (hereinafter referred to as the “Agreement”) is entered into on ________________ (the “Effective Date”), by and between the following:
(collectively referred to as the “Founders”).
- The Founders agree that ___________________ has been created as the business venture (hereinafter, referred to as “the Company”) located at ___________________.
TRANSFER OF OWNERSHIP
- The Founders agree that the transfer of shares will only be as follows:
- The Founders agree that the amount of capital contributed to the Company by each Founder will amount to $___________________.
- The Founders further agree that this amount is non-refundable.
- The Founders agree that upon the formation of the Company, the shares will be divided as follows:
- The Founders agree that they will be compensated ___________________ (full-time or part-time).
- The Founders agree that they will not disclose any concepts / technologies that are or may be related to this Agreement and business.
- The Founders agree that any amendments made to this Agreement must be in writing where they must be signed by the Founders of this business and Agreement.
- As such, any amendments made by the Founders will be applied to this Agreement.
- In an event where a provision of this Agreement is found to be void and/or unenforceable by a court of competent jurisdiction, then the provisions remaining will continue to be enforced.
- Any dispute and/or difference arising out of or related to this Agreement will be submitted to ________________ (Arbitration/mediation/negotiation) according to, and subject to the laws of ________________.
- This Agreement will be governed by and construed according to the laws of ________________.
- This Agreement is complete and with respect to the subject matter herein, supersedes all and any prior agreements, understandings, and conditions, expressed or implied, written or oral, of any nature with respect to the subject matter herein.
- The expressed terms control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms herein.
SIGNATURE AND DATE
- The Founders hereby agree to the terms and conditions set forth in this Agreement and such is demonstrated throughout their signatures below:
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