CoLauncher

The Agency for Nonprofits and Startups

Guide to a Founders’ Agreement

You’ve got the idea of a lifetime. You’ve done your research and scoped out the market, you’ve got a basic calendar for a run at the marketplace, and one other thing: Partners.

In the beginning, it’s a love fest. Everyone is on-board, enthusiastic, looking forward to a glowing future. So how does it so often go so wrong? What takes happy, optimistic partners and turns them, months or years down the line, into bitter enemies, tearing at each others’ throats?

Contracts.

This is a side of the business that a lot of technical folks neglect in their enthusiasm for an idea’s potential and the thrill of developing a real product. Right from day one, you need to have a strong, clear contract as your founder’s/shareholders agreement. If you wait until there’s actual profit to fight over before you strike a deal, or work out the pesky details of a deal, it becomes a fight over the money.

From day one, you need a clear statement of roles, responsibilities, equity, and ownership. You need to spell out details of stock ownership, what happens in a sale or an IPO, and voting processes for major business decisions.

Here is just a short list of some of the most crucial issues that need to be resolved ahead of time by these types of agreements:

Who owns what percentage of the business?
Is that ownership subject to vesting? What level of participation is required for vesting?
What are the founders responsibilities?
If a founder quits, does the company or the other founder have a mechanism for buying back that founder’s shares? How is the price determined?
How much time commitment to the business is expected of each founder?
Are the founders entitled to salaries? How much? Can that be changed?
How many votes do shareholders control? Is it one share one vote?
Is there a managing partner? If so, what controls do the other shareholder(s) exercise over that authority?
Can a partner be forced out? How?

You have to imagine yourself in the future, and predict possible conflicts, and resolve them before money and egos and the pressure of success – or the responsibilities of failure – make a quick resolution impossible.

If everyone knows from the outset what to expect, there are no unpleasant surprises. The way you keep partners from falling out is to ensure there is nothing to fall out over.


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