DECODING A CO-FOUNDER AGREEMENT
A Co-Founder Agreement is an agreement between Co-Founders that specifies each Co-ownership, Founder’s initial investments, and obligations. This agreement serves as a safety in the event of a disagreement by demonstrating what the co-founders agreed to.
Each founder’s equity and salary
Equity ownership, profit or loss participation, and each founder’s remuneration must all be specified under this section. It’s also a good idea to mention how salary changes will be handled.
IPR
When you work on a product/business company’s plan, you’re generating intellectual property (IP). This provision indicates that all intellectual property created belongs to the corporation, not the individuals who created it.
The company’s direction
This clause describes how the firm will operate, how operations will be carried out and in what direction, how things will proceed if you decide to expand the firm and hire new employees, and what will happen in the event of an acquisition or closure.
Responsibilities and roles
Each founder has a specific set of roles and responsibilities in the company. These must be mentioned in this section. Ensure that the duties of each founder are clearly defined so that there is no duplication of work or confusion about “who is to handle what” later on. This clause should be so explicit that each founder understands exactly what he is responsible for and what jobs do not fall under his purview.
Details about the co-founder
This section discusses the founders, their family history, educational background, and work experience. It is primarily used for evaluation purposes by outsiders to determine whether the founders are capable of running the business.
Initial capital contributions and equity breakdown
This section discusses asset ownership – who owns what. It also discusses how much capital each founder has invested in the company. This section is and will always be proofs of each founder’s investment. It should also include important details such as how much equity is vested and so on.
Management and approval authority
The founders negotiate and agree on decision-making and approval rights in this section. Who will be in charge of budget approval? Who will be signing the checks? Who is going to make the day-to-day decisions? This section addresses all of these concerns. It is usually preferable to have all of the founders’ approvals and signatures on all major decisions, while the active partner can be responsible for all of the day-to-day petty decisions.
Non-compete and Confidentiality agreements
This clause includes all confidentiality statements that are only between the founders and must not be disclosed to anyone else.
Director resignation, dissolution, and removal
This is the final requirement, which discusses how everything will be distributed among the founders in the event of the company’s liquidation or closure. It also discusses the terms under which one founder may fire another founder. Questions such as what happens when one of the founders leaves must be addressed. Is the company or the existing founders allowed to buy back that founder’s shares, and if so, at what price?
