What is a Founders Agreement?

A Founders Agreement is a legally binding document executed among the co-founders of a business or startup that outlines their rights, responsibilities, ownership structure, and operational terms during the formation and growth of the venture.

It defines how decisions will be made, how equity will be distributed, how roles will be performed, and how disputes will be resolved ensuring alignment, transparency, and stability among the founding team. A well-drafted Founders Agreement helps prevent future conflicts, clarifies expectations, and establishes a governance framework for the company’s management and strategic direction.

This template is:

• Lawyer-drafted and legally neutral, suitable for use in multiple jurisdictions.

• Applicable to startups, small businesses, partnerships, and early-stage ventures.

• Covers equity ownership, roles and responsibilities, vesting, exit rights, and dispute resolution.

• Customizable for technology, service-based, or product-oriented businesses.

Key Features of a Founders Agreement

1. Parties to the Agreement

Identifies all founding members by their full legal names, addresses, and shareholding proportions or capital contributions.

2. Purpose and Business Objectives

States the intent and vision of the founders in establishing the company or venture, including the business domain and scope of operations.

3. Capital Contribution and Equity Structure

Details each founder’s initial investment, percentage of ownership, and the mechanism for issuing additional equity in the future.

4. Roles and Responsibilities

Defines the functional roles of each founder (e.g., CEO, CTO, CFO, etc.), including their key duties, decision-making authority, and reporting responsibilities.

5. Vesting of Shares

Introduces a vesting schedule to ensure long-term commitment commonly structured over a 3–4 year period with a defined cliff, protecting the company from early exits.

6. Decision-Making and Voting Rights

Describes how business decisions are made, including voting thresholds for operational, strategic, and financial matters, ensuring balanced governance.

7. Intellectual Property (IP) Ownership

Assigns ownership of all IP, inventions, code, or creative work developed by founders to the company to safeguard business assets.

8. Restrictions and Confidentiality

Includes non-disclosure, non-solicitation, and limited non-compete obligations to protect business interests within the bounds of applicable law.

9. Exit, Transfer, and Buy-Back Rights

Outlines procedures for voluntary or involuntary exits, transfer of shares, right of first refusal (ROFR), and company buy-back options to maintain stability in ownership.

10. Dispute Resolution and Governing Law

Provides a neutral mechanism for resolving disputes typically through mediation or arbitration and specifies the governing law as mutually agreed between the parties.

Why You Need a Founders Agreement?

• Establishes clarity and accountability among co-founders.

• Prevents future misunderstandings and conflicts about ownership and roles.

• Protects the company’s intellectual property and equity structure.

• Provides a clear roadmap for decision-making and business continuity.

• Builds investor confidence through transparent governance and structure.

FAQs on Founders Agreements

Q1: Is a Founders Agreement legally binding?

Yes. Once executed by all founders, it becomes a legally enforceable contract setting out the foundational terms of the venture.

Q2: Is a Founders Agreement the same as a Shareholders Agreement?

No. A Founders Agreement governs the relationship between the initial founders before formal incorporation, while a Shareholders Agreement governs rights post-incorporation.

Q3: Can a Founders Agreement be modified later?

Yes. It may be amended with the mutual written consent of all founders as the company evolves.

Q4: Does it require registration?

Not necessarily. However, once the company is incorporated, relevant provisions may be incorporated into the company’s Articles or Shareholders Agreement.

Q5: Can the Founders Agreement include confidentiality and IP clauses?

Yes. Including confidentiality, IP assignment, and ownership clauses is recommended to secure the company’s intangible assets.

Related Templates You May Need

• Share Purchase Agreement

• Intellectual Property (IP) Assignment Agreement

• Employment Agreement