Overview

A Founders' Agreement is an official contract that is signed between all the co-founders of a firm. This document states all the responsibilities, ownership, and initial investments made by each of the founders of the company. It is advised to make a founders' agreement at the incorporation stage of an enterprise as it will lay out the responsibilities and roles of each of the co-founders.

Mainly, an agreement is made at the time of the incorporation to avoid ambiguity that may arise in the enterprise in future. It also sets up the expectations and goals of all the co-founders by assigning each of them a specific role and responsibility towards the betterment of the enterprise.

Founders' agreement is always better to be in a written format than being an oral contract. It is also important that it is to be drafted with the help of a legal team, which ensures elimination of all the loopholes that can be exploited.

Get Started to file Founders' Agreement

Checklist for Founders' Agreement

Now, let us look at the essentials that are a must in any founders' agreement. They are:

• Definition of the business
• Details of capital raised (by founders and investors)
• Ownership details (in the company)
• Roles and responsibilities of each of the co-founders
• Compensation (salary drawn by each of the co-founders)
• Details of exit formality for founders
• Dissolution of the firm
• Details of dispute resolution
• Miscellaneous provisions (assignment of intellectual property rights, non-compete clauses, etc.,)

Benefits of Founders' Agreement

Stated below are some of benefits of Founders' Agreement:

• Determining the type of business entity:
  The founders' agreement will clearly mention the nature and type of entity that should be established by the co-founders thereby setting the proper path to be followed.
• Outlined business plans:
  This agreement describes the vision and mission of the entity and sets the short term and long term goals to be achieved over a period of time.
• Designating the roles and responsibilities:
  Obviously, there will be overlapping roles and functions between co-founders without having a proper framework of the assigned roles. Therefore, it is important to designate the roles and responsibilities of the co-founders, in accordance with their area of mastery like marketing, operations, finance, etc.
• Structure of ownership:
  The founder's agreements will clearly specify the structure of ownership pertaining to the initial contribution made by the cofounder or the percentage of the equity shares held by the cofounder in case of a company, thereby avoiding any future conflicts in between them.
• Decision making:
  At a certain point in time, there will be an ideological conflict between co-founders, So these conflicts are to be handled through the proper decision-making process. Here the founders' agreement will formulate a procedure to be followed during the decision making process. If the voting system is adopted, then it should define the value of votes for each founder and provide a solution in case of a deadlock situation.
• Compensation provisions:
  This agreement laid down the scheme of compensation to be carried out, if anyone of the cofounder has violated the provisions mandated. Here, the proportion of the compensation to be made will be mentioned for every cofounder.
• Expulsion of co-founders:
  Any co-founder can be evicted from the company for indulging in fraudulent activities like misappropriation of funds, sexual harassment, and getting employed with other organisations. This agreement ensures a proper structure on how to deal with these situations and sorting out appropriate funds to be reverted to the expelled co-founder.
• Confidentiality:
  There was a separate clause on confidentiality in the founders' agreement, which makes an obligation for founders to not reveal the secrets of the business.

Documents & Details Required for Filing Founders' Agreement

Following are the documents and details required for Founders' Agreement:

• Address Proof of all co-founders
• Identity Proof of all co-founders
• Identity Proof of Witnesses
• Objective of the company
• Number of equity shares of each co-founder
• Overall percentage of shares of each co-founder

Procedure for filing Founders' Agreement

The procedure for drafting the founders' agreement involves the following steps:

• The draft of the founder's agreement is prepared by including all the required fields, like objectives of the company, terms, and, conditions to be followed by the co-founders.
• Once the drafting process is complete, check if all mandatory provisions have been included, with no ambiguous clauses.
• Add additional information that has to be furnished in the agreement, if required.
• The final draft should be acknowledged by all the cofounders, that it has been scrutinised with acceptance of the aforementioned agreement.
• Once all co-founders have agreed to the agreement, it should be notarized on a non-judicial stamp paper.
• After notarizing, get the signature of all the co-founders on the agreement.
• Before entering into the agreement, get expert guidance to avoid disputes.

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