A Founder Agreement is a very important document that governs the inter rights and obligations of founders, their responsibilities, their shareholding, their exit clauses, etc.
Imagine a scenario where you co-found a company along with your friends. Fast forward a few months, business is booming and you are looking at investment. However, your co-founder is becoming a bit of dead-weight, is refusing to perform, or is creating hurdles to the investment.
Scenario Two – Your co-founder and you have just got a big investment into the company, but one of you is unhappy about the new responsibilities, or the number of shares held, or any other factor. The difference of opinion arises from some verbal agreement from when you started the business but is threatening to derail the company now. Scenario three: Your co-founder exits the company leaving you high and dry and is pressuring you to refund his investment amount.
For all of these scenarios, and more not explained above, it is best to get a Founders Agreement drafted that addresses all these questions.
Contents of a Founders Agreement – A founders agreement may contain the following clause
- Details of the parties to the agreement.
- The business relation between the parties.
- The duties of each founder and the manner in which it is to be performed.
- Representations and warranties of each Party.
- Assignment of intellectual property.
- The obligations of the transferor to assist the transferee in the assignment of the IP, by doing such acts as necessary, including providing representations and requests to the relevant IP regulatory authority.
- Details of shareholding in the company.
- Restrictions on transfer of shares, such as through a right of first offer (RoFO) or right of first refusal (RoFR).
- Remuneration payable for duties performed.
- Remedies for breach of the agreement.
- Dispute resolution.
- Governing law of the agreement and governing law of the dispute resolution clause.
- Other provisions such as survival of clauses, severability, etc.