Founders Agreement

What does Founders Agreement mean?

It is generally a shareholders ' agreement dealing with situations such as the relative distribution of the equity between the founders of the company and the fact that the founders will have to stay with the company for their shares to be completely purchased. It thus expands the roles and responsibilities of a company's founding members, the interest in them, and so on. The founders ' agreement includes various elements performed by the founders.

What is the need of a Founder’s Agreement

The most important reason why a Founders Agreement is recommended is to eliminate any confusion that may arise in the future about company management and business ties between the founders. It can recognize the potential risks and complications and provide plans to deal with the same.

It is therefore also suggested that a formal Founders Agreement be drawn up after engaging an expert in accordance with the business needs and the co-founder's knowledge.

What points need to keep in mind while drafting the Founders Agreement?

The co-founders must participate in a meaningful discussion to establish an understanding of issues such as ownership, management, remuneration, benefits, funding, management committee, etc, before entering into a Founders Agreement. Clarity that will then be expressed in the Founders Agreement is important for the founders. The Founders Agreement elements should be discussed in depth so that a comprehensive and definitive outcome can be obtained.

A well-drafted Founders Agreement helps to prevent circumstances that might delay growth and trigger business management confusion. A wise shareholder also ensures that the Founders Agreement must be examined during due diligence.

Approaching an experienced consultant to aid in drafting a Founders Agreement is always desired. It means the safest way to protect the interests of the founders and the company.

What is the importance of a Founders Agreement?

Such Founders Agreement is a legal document drafted at the time the company was formed to eliminate confusion with regard to the positions, duties and payments / remunerations of each co-founder.
It must be safe from all the weaknesses at a later point in time that could be abused. It should also be ensured that it is accurate, comprehensive and watertight.

Clauses that are essentials to a Founders Agreement are as follows:

  • Business’s Definition and scope
  • Ownership
  • Information related to the capital raised (by founders and investors)
  • Each co-founders Roles and responsibilities
  • Co-founders’ Compensation
  • Founders’ exit formality
  • Business Dissolution
  • Stating laws and resolution of Dispute
  • Miscellaneous provisions relating to
    1. intellectual property rights (IPR),
    2. non-compete clauses,
    3. loans from founders,
    4. Severe ability etc.

In addition, the provisions can be inserted according to the business needs and the co-founder's interpretation.

What are the benefits of Founders Agreement?

Clarity: This gives the founders clarification. There are some issues that are not addressed among the co-founders. The agreement therefore offers clarity of questions, judgments and words.

Segregation: The roles and responsibilities are clearly separated and established by the agreement of the founder.

What are the steps of Founders Agreement?

  • A well-efficient attorney from our group will approach you to describe the entire process and appreciate the need for a Founders Agreement.
  • The lawyer shall draft a template Founders Agreement accordingly once the purposes of the agreement are transparent.
  • You will obtain the draft Founders Agreement for review.
  • It generally takes around 3-4 working days for the whole process.