So you have everything in place for your startup. You also have a team in place, including your co-founders with you. However, one thing many startups tend to overlook is a founders agreement.
One could assume that since startups are usually the result of two or more like-minded people, this agreement often skips the mind. However, it is extremely important to outline expectations right at the onset as this helps in decision making and reduces risks. It also avoids any kind of an eventual dispute between founders.
A properly done founders agreement would ideally have the rights, responsibilities, goals, a broad vision for the company, vesting provisions, IP (intellectual property) assignment, and anything else that co-founders may want to settle before the business takes shape.
It should also carry a clause for what if one founder decides to leave the company in the middle. A case in point is what happened with Housing.com. It is important to identify the person responsible for making major decisions beforehand and outline it in the agreement.
Also to be included will be what rights are carried by which member, and what step to take in case of any major disagreements.
Founders often do not have the same amount of contribution towards the business, be it their time or money. Therefore, it is also important for the document to carry a clause on equity ownership. The best agreements include multi-year vesting, so that founders’ financial success is aligned with the company’s.
All IP designed must belong to the company and this is one more clause for a founders’ document. This will also prevent any co-founder from taking mission critical technology with him or her during a sudden exit.
All said and done, it is always good to have the agreement checked by a legal expert before signing on the dotted line. Any omissions or ambiguities, if caught right in the beginning will pave the way for a successful relationship and a successful company in turn. And mind you, it is worth every rupee spent!
If you would like a founders agreement for your startup, please get in touch with us at [email protected]
Nikita Bhatia is the co-founder of VenturEasy, an online platform for Company registration, book-keeping, accounting, tax consultancy and legal compliances in India. A Chartered Accountant and company secretary by profession, she has wide experience in the fields of audit, accountancy, taxation and corporate governance.