Founders Agreement
Overview of a Founders Agreement:
A founders agreement, also known as a co-founders agreement, is a formal contract or legal document signed by the individuals establishing a business together. It delineates the roles, rights, responsibilities, ownership stakes, liabilities, and investment shares of each founder.
Written Format Requirement: A founders agreement must be documented in writing rather than agreed upon verbally.
Joint Participation: Two or more partners can collectively enter into the founders agreement, referred to as co-partners or parties.
Timing of Agreement: All co-founders are expected to sign the agreement either during the incorporation of the business or at the commencement of the company.
The primary aim of the founders agreement is to preemptively address potential disputes among co-founders, establishing a framework for their actions and obligations.
Additionally, founders agreements are instrumental in addressing unforeseen events such as a co-founder’s death or resignation, which could disrupt the business’s continuity and growth trajectory.
Benefits of a Founders Agreement
Entity Specification: Clearly defines the type and structure of the business entity to be formed by the co-founders, guiding their strategic direction.
Business Vision: Outlines the entity’s vision, mission, and objectives, providing clarity on short-term and long-term goals.
Roles and Responsibilities: Designates specific roles and responsibilities to each co-founder, aligning with their expertise areas to prevent overlap.
Ownership Structure: Specifies the initial contributions or equity shares held by each co-founder, preempting future conflicts over ownership.
Decision-Making Process: Establishes procedures for resolving disagreements, including defining voting rights and mechanisms for deadlock situations.
Compensation Arrangements: Sets forth compensation schemes for breaches of agreement, detailing the proportion of compensation owed by each co-founder.
Co-founder Expulsion: Addresses procedures for expelling a co-founder due to misconduct, ensuring fair treatment and appropriate financial arrangements.
Confidentiality Clause: Includes provisions mandating confidentiality to safeguard the business’s sensitive information from unauthorized disclosure.
Documents Required for Preparation of a Founders Agreement:
- Address proof of all co-founders
- Identity proof of all co-founders
- Identity proof of witnesses
- A clear objective of the company
- The number of equity shares held by each co-founder
- The overall percentage of shares held by each co-founder
Procedure for Drafting a Founders Agreement:
The drafting process of a founders agreement entails the following steps:
Draft Preparation: Create a comprehensive draft of the founders agreement, incorporating essential details such as company objectives and terms and conditions binding the co-founders.
Review and Revision: Upon completion of the draft, thoroughly review it to ensure inclusion of all necessary provisions and elimination of any ambiguities.
Incorporating Additional Information: Supplement the agreement with any additional information deemed necessary for clarity or completeness.
Acknowledgment by Co-founders: Obtain acknowledgment from all co-founders confirming scrutiny and acceptance of the agreement’s terms and conditions.
Notarization: Notarize the final draft on a non-judicial stamp paper after unanimous agreement from all co-founders.
Signature Collection: Collect signatures from all co-founders on the agreement document following notarization.
Expert Guidance: Seek expert advice prior to finalizing the agreement to mitigate the risk of potential disputes or oversights.
Key Terms of a Founders Agreement
Founders: Identifies the co-founders and delineates their respective roles and responsibilities within the company.
Ownership: Describes the equity ownership structure of the business, detailing the percentage of ownership held by each co-founder.
Vesting: Establishes the vesting schedule for each co-founder’s equity ownership, typically spanning a four-year period with a one-year cliff. This mechanism ensures that co-founders earn their equity over time.
Management and Control: Outlines the decision-making structure of the company, including processes for important decisions and the roles and responsibilities of each co-founder in decision-making.
Intellectual Property: Addresses ownership and protection of the company’s intellectual property, encompassing patents, trademarks, copyrights, and trade secrets.
Confidentiality and Non-Disclosure: Describes each co-founder’s responsibility to safeguard the privacy of the business’s proprietary information and trade secrets.
Termination and Exit: Outlines circumstances for a co-founder’s termination from the company and the exit process, including provisions for right of first refusal and buyout.
Dispute Resolution: Establishes mechanisms for resolving disputes within the company, ensuring efficient resolution of conflicts.
Founders Agreement Template
This Founders’ Agreement (also referred to as the ‘Agreement’) is entered into as of [DD/MM/YYYY] by and among [XXXX] (the ‘Company’), and the following founders (the ‘Founders’):
- [Insert Founder Name]
- [Insert Founder Name]
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:
I. Business Venture The Founders have established [XXXX].
The Company’s initial place of business is located at [business Address].
II. Initial Capital Each Founder agrees to contribute ₹₹₹ as non-refundable initial capital to cover expected and potential company expenses.
Further capital contributions may be made with the unanimous written consent of the Founders to cover future operational expenses.
III. Ownership Structure Following the establishment of the company, the founders will receive ownership percentages as follows:
[Provide an explanation of share distribution in your Founders Agreement]
These shares represent the Founders’ initial proportional ownership of the Firm and are non-transferable securities.
IV. Voting Voting rights shall be determined by each Founder’s percentage of shares in matters requiring a majority vote related to the business venture.
In the event of a tied vote, [Insert Name] will cast the deciding vote.
V. Vesting Schedule The Founders may establish a vesting schedule for shares, with vesting occurring over a period to be agreed upon by all Founders.
If a Founder terminates their association with the company before all shares vest, the remaining shares will revert to the company.
VI. Intellectual Property Ownership Each Founder shall assign to the company all rights, titles, and interests in the business venture and associated intellectual property generated during the term of this agreement.
Additional terms and clauses related to business and intellectual property values will be included.
VII. Amendment and Waiver; Termination No oral amendment, modification, termination, or waiver of any provision of this Agreement shall be binding. Only a written agreement signed by the Founders may alter, modify, or terminate this Agreement.
VIII. Resignation and Removal A Founder may resign from the Firm by providing written notice to the other Founders. Upon resignation, the departing Founder will receive any positive capital account balance within 180 days.
In the event of all Founders resigning, the Company will dissolve, and this Agreement will terminate after settling the Company’s affairs.
IX. Miscellaneous Provisions
A. Confidentiality Founders are obligated to maintain the confidentiality of labeled ‘Confidential Information’, sharing it only with unanimous agreement.
B. Dispute Resolution Founders agree to resolve disputes through mediation or arbitration if necessary.
C. Severability If any term of this Agreement is deemed unlawful, void, or unenforceable, the Agreement will be revised to the extent possible, with remaining provisions remaining in effect.
D. Entire Agreement This Founders Agreement supersedes any prior agreements and understandings, capturing the parties’ complete understanding. Only a formal revision signed by all parties may alter this agreement.
The parties have caused this Agreement to be duly executed as of the date first mentioned above.
FOUNDER #1
[Insert Founder Name]
FOUNDER #2
[Insert Founder Name]
Why Trademarkwala for a Founders Agreement?
At Trademarkwala, we handle legal tasks for more than 1000 companies each month, utilizing both our technological prowess and the knowledge of our experienced legal team.
We guarantee a smooth and interactive process with government entities, ensuring efficiency and accuracy in all dealings.
Our standard pricing already includes two rounds of revisions, providing you with flexibility and peace of mind.
Join us and discover the simplicity and convenience of working with our platform.
Should you require any modifications to the agreement, our legal experts will address them promptly and send the revised version for your review.