Overview of Founders' Agreement

What is this document?

The Founders’ Agreement serves as a blueprint for how a business will be run by the founders before the founders officially begin doing business together. It captures the understanding between the founders (in definite terms) on important matters such as the ownership structure, ownership of intellectual property, choice of law and more. This can also be used in a similar manner as a term sheet, as it sets out the basic terms around key founder questions in one place.

Typically, the formal agreements would be established in specific documents like a stock option plan or stock restriction agreement for (vesting); consulting or employment agreements; shareholders’ agreements, etc.

When would I use this document?

Founders’ Agreements are used during the early stages of formation, ideally before even creating the business entity, rather than later in the life of a company.

Who signs this document?

This document is signed by the founders of the business.

More details about this document

Having a Founders’ Agreement in place before commencing business operations can minimize the chance of a dispute among founders in the future, help you decide whether you can work with your future co-founder before you invest significantly into the venture, and expedite the formal incorporation process if you choose to incorporate at a later date.

What are the core elements of this document?

The core elements of a Founders’ Agreement include:

  • Transfer of Ownership
  • Ownership Structure
  • Confidentiality
  • Decision-making
  • Dispute Resolution
  • Representations and Warranties
  • Choice of Law

Written by Chris.