What is a founders' agreement?

A founders' agreement is a written document that is agreed upon and signed by the co-founders of a company. It outlines the roles, responsibilities, rights, and relationships of each founder.

Additionally, it provides provisions for various business scenarios, ensuring that the co-founders have a clear roadmap to follow in various situations.

Benefits for People and Businesses:

1. Clarity on Roles and Responsibilities: By setting out the roles and responsibilities of each founder, the agreement helps prevent misunderstandings or disputes down the line. Each person knows what is expected of them, leading to smoother operations.
2. Equity Ownership: The agreement delineates the ownership percentage for each founder. This clarity is essential as it recognizes the contribution and risks taken by each founder and can prevent future disputes.
3. Protection of Intellectual Property: Founders' agreements often include clauses about the ownership and protection of the intellectual property (like patents, trademarks, and copyrights) created by the founders for the business. This ensures the company retains the rights to its vital assets.
4. Conflict Resolution: In any partnership, disputes can arise. A founders' agreement will typically include mechanisms to resolve disagreements, whether through mediation, arbitration, or another method, saving time and potential legal costs.
5. Provisions for Departure: If a founder decides to leave or is unable to continue with the company, the agreement outlines the process for their exit, protecting both the departing founder's interests and the company's continuity.
6. Decision-making Protocols: This delineates how decisions are made, whether unanimously or by majority rule, ensuring that there's a clear process in place for both routine and significant business choices.
7. Delineation of Commitment: Some founders might work part-time, while others might work full-time, and their commitments might vary. The agreement can specify each founder's commitment to the venture.
8. Future Funding: The agreement can provide clarity on how future funding rounds will be managed and what rights and dilutions might apply to the founders' shares.

For businesses, having such an agreement in place provides a structured foundation, allowing the company to navigate its early stages with fewer internal disputes and misunderstandings.

For individuals, especially the founders, the agreement offers protection, clarity, and a sense of security regarding their stakes and roles in the business.

In both cases, the founders' agreement acts as a form of insurance, ensuring that the company can weather the often tumultuous early days of a startup.