agreementkart.com

Co-Founders Agreement

A Co-Founders Agreement is a legally binding document that outlines the roles, responsibilities, ownership stakes, and other key terms agreed upon by the co-founders of a startup. It serves as a guide for how the co-founders will work together to build and run the business.

Terms & Conditions

1. Price may vary on customized drafting

2. E-stamp paper & Express delivery charges extra.

3. If Notary required, Notary charges extra

If you need assistance feel free to contact us : 9972031190

Frequently Asked Questions (FAQs) on Co-Founders Agreement

What is a Co-Founders Agreement?

A Co-Founders Agreement is a legally binding document that outlines the roles, responsibilities, ownership stakes, and other key terms agreed upon by the co-founders of a startup. It serves as a guide for how the co-founders will work together to build and run the business.

2. Why do we need a Co-Founders Agreement?

  • Clarifies Roles and Responsibilities: Clearly defines each co-founder’s duties and contributions, avoiding overlaps and misunderstandings.
  • Prevents Disputes: Provides a clear framework for resolving conflicts and making decisions.
  • Protects Interests: Safeguards the rights and interests of each co-founder, including equity distribution and intellectual property ownership.
  • Sets Expectations: Establishes clear expectations regarding time commitment, contributions, and exit strategies.

3. What should be included in a Co-Founders Agreement?

  • Equity Split: How the ownership of the company is divided among the co-founders.
  • Roles and Responsibilities: Specific duties and obligations of each co-founder.
  • Intellectual Property (IP): Ownership and rights related to IP created by the co-founders.
  • Decision-Making: Processes for making major business decisions and resolving disputes.
  • Vesting Schedule: Timeline over which co-founders earn their equity to ensure long-term commitment.
  • Exit Clauses: Conditions under which a co-founder can leave the company and the consequences of their departure.
  • Non-Compete and Confidentiality: Clauses to protect the company’s interests from competition and unauthorized disclosure of information.
  • Salary and Compensation: Details regarding the salaries, bonuses, and other compensation for each co-founder.
  • Capital Contributions: The amount of capital or resources each co-founder will contribute to the startup.

4. How is equity typically divided among co-founders?

Equity is usually divided based on factors such as:

  • Contributions: The amount of capital, time, or resources each co-founder brings to the table.
  • Roles and Responsibilities: The significance of each co-founder’s role in the company.
  • Experience and Skills: The expertise and skills that each co-founder contributes to the business.

5. What is a vesting schedule and why is it important?

A vesting schedule determines when co-founders earn their equity over time, typically to ensure they remain committed to the business. A common vesting schedule is over 4 years with a 1-year cliff, meaning a co-founder must stay with the company for at least one year before earning any equity, and then earns equity monthly or quarterly thereafter.

6. What happens if a co-founder leaves the company?

The Co-Founders Agreement should outline:

  • Buyback Rights: The company or remaining co-founders’ right to buy back the departing co-founder’s equity.
  • Vested vs. Unvested Equity: How much equity the departing co-founder retains based on the vesting schedule.
  • Non-Compete and Non-Solicitation: Restrictions on the departing co-founder’s ability to start a competing business or poach employees.

7. How are intellectual property rights handled in a Co-Founders Agreement?

Typically, the agreement states that all IP created by the co-founders related to the business is owned by the company. This ensures that the business retains control over its key assets.

8. Can a Co-Founders Agreement be amended?

Yes, a Co-Founders Agreement can be amended, but any changes usually require the consent of all co-founders. It’s advisable to include a clause outlining the process for making amendments.

9. Do we need a lawyer to draft a Co-Founders Agreement?

While it is possible to draft a Co-Founders Agreement using templates, it is highly recommended to seek legal advice to ensure that the agreement is comprehensive, legally binding, and tailored to the specific needs of your startup.

10. When should we create a Co-Founders Agreement?

A Co-Founders Agreement should be created as early as possible, ideally before or immediately after starting the business. This helps ensure that all co-founders are aligned and that the business starts on a solid legal and operational foundation.

11. What should be done if a co-founder is not fulfilling their responsibilities?

The agreement should outline a process for addressing underperformance, which might include:

  • Mediation or Arbitration: Involving a neutral third party to help resolve the issue.
  • Reallocation of Responsibilities: Adjusting roles to better fit each co-founder’s strengths and capabilities.
  • Potential Removal: In extreme cases, the agreement might include provisions for the removal of a co-founder who consistently fails to meet their obligations.

12. How should profit-sharing be handled?

The agreement should detail how profits (and losses) will be distributed among the co-founders. This often aligns with the equity split but can include specific terms based on contributions and performance.

Having a well-drafted Co-Founders Agreement can greatly contribute to the long-term success of a startup by providing clarity and preventing potential conflicts among the founding team. It ensures that all co-founders are on the same page and that the startup operates smoothly.

Open chat
1
Hello 👋
Can we help you?