Founders Agreements: A Comprehensive Guide

Founders agreements can be one of the most important tools for a new start up, or existing startup that is on the verge of receiving investment funds. A founders agreement helps establish the basic rights of founders with respect to early-stage, pre-seed, and seed stage companies. The point of the founders agreement as to capture the material deal points about how the business is to operate, and who will be doing what, before the up company receives significant outside funding, customers, revenue, or takes on risk.

If you are a founder looking to prepare a founders agreement, or are cofounder negotiating the terms of a founders agreement that has been presented to you, we have put together this comprehensive guide to help you through the process, go over the most common deal points, and you also find samples, checklists, and even an option for custom form if you need professional help.

► Why Have a Founders Agreement?

One of the big questions that founders always ask themselves when doing searches and looking for more information about founders agreements is whether they really need one. In a review of what others have to say about the topic, it’s not difficult to see why founders come to this conclusion. Most of the literature on founders agreements online have to do with spelling out responsibilities, who will be doing what, will be in charge of decision-making, and what the goals of the startup will ultimately be. In our experience, these are actually none of the issues that cause the greatest amount of heartburn for new founders. However, the reality is that having candid discussions about difficult issues can be uncomfortable, and for that reason, many founders agreements focus on issues and content that is not ultimately that significant or consequential, and failed to address the real issues that can cause the greatest amount of controversy and headache for new founders. So, the purpose of this overview is not to regurgitate the other material that can be found online, but to provide a candid discussion of the issues that really must be covered in a founders agreement, if the founders are to protect themselves. Founders agreements are similar to prenuptial agreements – no matter how much the newlyweds discuss what their goals are, or who will be doing what responsibilities, these discussions miss the point because the real purpose of a prenuptial agreement is to protect each party, their rights, their assets, and their belongings, in the event the marriage ultimately does not work out. Founders agreements are the same way. They need to cover the most important issues, or else they will end up largely being worthless.

► What Should Be in the Founder’s Agreement – Points You Already Know About

You probably already know from reading all the other articles on founders agreements about the topics that should be covered. These are as follows: