Co-founders Agreements

Whenever you are launching a new enterprise, there is nothing more important than having a clear agreement amongst the founders around a handful of key issues that are critical to your ability to safeguard the future viability of your new enterprise and to raise venture money. The basic key issues cover three really important areas:

  • The roles and responsibilities of the founding team.
  • Equity ownership and vesting
  • Intellectual Property Ownership

During the initial stages of a start-up, everyone seems to be doing everything but before long, different team members become in charge of different departments and hence it is at this stage where conflict of interest arises. So here the co-founders agreement has a role to play which highlights the information regarding who will solve the conflict, who will decide the policies etc. Hence Documentation such as term sheet has its own importance in any organization.

Components of a Co-founders Agreement

  • Co-Founder details
  • Project description
  • Equity breakdown and initial capital contributions
  • Roles and responsibilities of each Co-Founder
  • Management and approval rights
  • Non-compete, confidentiality and intellectual property
  • Resignation, dissolution and removal of directors.

Disclosure of Roles and Responsibilities

This is one of the most important topics to cover, but is one that may seem unnecessary at an early stage, when all the co-founders may be wearing multiple hats. The priority is identifying the areas of responsibility for each co-founder, both to avoid miscommunication and so that each person can be held accountable for their respective areas. What you want to avoid is a situation in which all three co-founders see themselves as the future CEO and the issue goes unaddressed.

Another potential issue is when one co-founder will be more involved in the company than the other(s). It is important to make clear whether each co-founder will devote him/herself to the company full-time, or if the co-founders will be involved to different degrees.