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. It is advised to make a founders’ agreement at the incorporation stage of an enterprise as it will lay out the responsibilities and roles of each of the co-founders.
Mainly, an agreement is made at the time of the incorporation to avoid ambiguity that may arise in the enterprise in future. It also sets up the expectations and goals of all the co-founders by assigning each of them a specific role and responsibility towards the betterment of the enterprise.
Now, let us look at the essentials that are a must in any founders’ agreement. They are:
- Definition of the business
- Details of capital raised (by founders and investors)
- Ownership details (in the company)
- Roles and responsibilities of each of the co-founders
- Compensation (salary drawn by each of the co-founders)
- Details of exit formality for founders
- Dissolution of the firm
- Details of dispute resolution
- Miscellaneous provisions (assignment of intellectual property rights, non-compete clauses, etc.,)
Founders’ agreement is always better to be in a written format than being an oral contract. It is also important that it is to be drafted with the help of a legal team, which ensures elimination of all the loopholes that can be exploited.