13 Components to Include in a Founders Agreement

Hey — It's Nico.

In June, I'm publishing articles related to Co-Founders. This week, an article on Startup Founder Agreements.

🙌 Welcome to the 525 founders who joined this week.

This issue is brought to you by Around:

A few months ago, I downloaded Around, looking for ways to improve my Zoom's calls with other startup founders.

I've since stuck to Around for two reasons: 1) it frees up my screen, which allows me to easily read and take notes as I have the call; 2) my background image and noise are always messy and Around helps me avoid founders from noticing this.

What is a Founders’ Agreement? It's a legal contract that clearly outlines the terms of your business partnership when you found a startup with a co-founder.

Why should you have such an agreement? Here are some of the main reasons:

• It helps avoid issues and disputes down the road. If there is ever a disagreement in the future, you can refer back to the signed contract to clear it up.
• It protects you when things don’t go as planned or when your co-founder isn’t standing up to their end of the bargain (and vice versa for your co-founder).
• It protects the company by defining whose intellectual property it is and outlining what will happen if a co-founder decides to leave.
• It helps you and your business partner navigate the day-to-day operation of your business, since it clearly states who has what roles and responsibilities.

What should be included in a Founders’ Agreement? In the article, we analyze the 13 main components:

1. Name of the founders and the startup (you can change it later on and update the contract).
2. Brief overview of what your startup plans to do. This gives context to other items in the contract.
3. What percentage of the company you and your partners each own (the standard rule is to split equity evenly).
4. Who is responsible for each of the important tasks. You should divide roles based on your and your co-founder’s skillsets.
5. How much capital (cash, property, other resources) will each co-founder commit to founding the company, and what happens if the company needs more capital to keep operating.
6. The processes for managing the budget and expenditures.
7. Tax-related information (it's recommended to hire an accountant to take care of this part).
8. How you will make legal decisions and vote on other major company decisions.
9. How much equity each partner receives, and when and how will this vest (4-years vesting periods are the most common).
10. Any compensation founders will receive (salary or other benefits). You can set certain milestones at which each form of compensation will be given.
11. Whose IP your startup idea is (it can belong to the company itself).
12. What happens if one of the founders wants to walk away from the company.
13. How you will go about dissolving or selling your startup in case you decide to do either.

What are some tips for creating a Founders’ Agreement?

• Get multiple sets of eyes to look over the agreement before you sign and make it official.
• Get an initial second opinion from another founder or entrepreneur in your network.
• Have a lawyer or another legal professional look over the contract as a last step before signing it.

After you’ve checked and double-checked your agreement, it’s time for you and your co-founder to sign it and proceed with the real work of founding a startup!

​Here is our guide to Startup Founders’ Agreements.​

If you still haven't found a co-founder with whom to sign an agreement, you might find useful these two guides we published in the last weeks:

• ​How to Find a Co-Founder​
• ​How to Find a Technical Co-Founder​

As every week, here are 3 recommended resources:

• ​The Future of Solo Capitalists: In the last years, there was a surge of one-person firms investing in startups, as opposed to multi-person venture funds. This article analyzes how these win deals and their main challenges.
• ​Co-Founder of Rappi on Building an On-Demand Startup: Rappi is a Latin American on-demand super app. In this interview, Sebastian Mejia talks about the on-demand industry, multi-verticality, and how Rappi can win its market.
• ​Zapier's Landing Page Teardown: DemandCurve has been publishing some analyses of startups’ landing pages. In this article, they explore how Zapier uses familiarity and visuals to quickly establish an "aha moment" for its website visitors.

I hope you enjoyed this week's newsletter!

Cheers,

Nico