Founder Agreement
Establish Clear Foundation for Your Startup Success
A Founder Agreement is a crucial legal document that defines the relationship, roles, responsibilities, and equity distribution among co-founders of a startup. Aggarwal H K & Co. provides comprehensive founder agreement drafting services, helping startups avoid future disputes and establish clear governance from day one.
What is a Founder Agreement?
Founder Agreement is a legally binding contract between co-founders that establishes the framework for how the startup will be owned, managed, and operated. It addresses critical issues before they become problems, protecting both the business and founder relationships.
Why Founder Agreement is Critical?
Prevent Future Disputes
Clear documentation of agreements prevents misunderstandings and conflicts that can destroy startups.
Equity Clarity
Defines equity split, vesting schedules, and dilution protection, avoiding ownership disputes.
Role Definition
Establishes each founder’s responsibilities, decision-making authority, and expectations.
Investor Confidence
Professional investors require founder agreements as proof of organized, serious venture.
Exit Planning
Defines what happens when a founder leaves, ensuring business continuity.
Key Components of Founder Agreement
Equity Distribution
Clear breakdown of ownership percentage for each founder based on contribution, role, and agreement.
Vesting Schedule
Time-based earning of equity (typically 4 years with 1-year cliff) protecting company if founders leave early.
Roles and Responsibilities
Specific designation of each founder’s role, authority level, and operational responsibilities.
Decision Making
Framework for major decisions – unanimous consent vs majority vote, reserved matters.
Intellectual Property Assignment
All IP created by founders belongs to company, not individuals.
Commitment and Time
Full-time vs part-time commitment expectations and consequences for not meeting obligations.
Founder Departure
Voluntary and involuntary exit scenarios, buyback clauses, and equity treatment.
Non-Compete and Non-Solicit
Restrictions on starting competing business and poaching employees/customers.
Confidentiality
Protection of company confidential information and trade secrets.
Dispute Resolution
Mediation and arbitration mechanisms for resolving founder conflicts.
Equity Vesting Explained
What is Vesting?
Gradual earning of equity over time rather than immediate full ownership, ensuring founder commitment.
Standard Vesting Terms
4-year vesting with 1-year cliff (25% vests after year 1, remaining monthly over 3 years).
Cliff Period
No equity vests during first year; if founder leaves before cliff, they get nothing.
Acceleration Clauses
Situations where vesting accelerates (acquisition, termination without cause).
Founder Exit Scenarios
Voluntary Departure
Terms for founder choosing to leave, including equity treatment and transition responsibilities.
Termination for Cause
Removal for misconduct or breach, typically resulting in forfeiture of unvested equity.
Death or Disability
Provisions for handling equity and responsibilities in unfortunate circumstances.
Buyback Rights
Company’s right to repurchase departed founder’s shares at fair value or predetermined formula.
Common Founder Agreement Mistakes
Equal Split Without Logic
50-50 splits often lead to deadlock; distribution should reflect contribution and role.
No Vesting Schedule
Founders receiving full equity immediately can leave with significant ownership.
Unclear Decision Rights
Ambiguity about who decides what leads to constant friction.
Missing Exit Terms
Not planning for departures creates crisis when founders leave.
When to Create Founder Agreement?
Ideal Timing
Before incorporating company or raising any funding, when discussions are friendly.
Early Stage Critical
The earlier the agreement, the easier to have honest conversations about equity and roles.
Our Drafting Process
We conduct detailed consultations understanding founder dynamics, business model, and future plans, then draft comprehensive, balanced agreements protecting all parties while ensuring startup success.
Build Strong Founder Relationships! Trust Aggarwal H K & Co. for professionally drafted founder agreements that establish clear expectations and protect your startup’s future.