Founder’s Agreement

Description

Benefits of a 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 any one of the cofounders 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 organizations. 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.