A founders agreement is the contract between co-founders that defines ownership, roles, and what happens if someone leaves. It's the most important document a startup team signs — and the one most teams skip until it's too late.
The conversations you need to have now
- Equity split — how much does each founder own? Equal splits are common but not always fair. Consider contribution (idea, capital, skills, time) and risk.
- Vesting — founders earn their equity over time, typically 4 years with a 1-year cliff. This protects the team if a co-founder leaves early.
- Roles and responsibilities — who's CEO? Who controls engineering? Define decision-making authority to prevent power struggles.
Without vesting, a co-founder who leaves after 3 months could walk away with 50% of the company. This is the single most common startup dispute.
Key clauses
- Intellectual property assignment — all work product created for the company belongs to the company. Each founder assigns their prior inventions.
- Decision-making — which decisions require unanimous consent (hiring/firing, fundraising, pivots) and which can be made by individual founders.
- Non-compete and non-solicitation — founders can't start competing businesses or poach the team while the company is active.
- Confidentiality — company information stays private.
- Dispute resolution — mediation, then arbitration. Include a "shotgun" clause (one founder names a price, the other must buy or sell at that price).
What happens when a founder leaves
- Good leaver (voluntary departure, performance issues) — vested shares are retained, unvested shares are forfeited.
- Bad leaver (breach, competition, misconduct) — company can repurchase vested shares at a discount.
- Death or incapacity — company repurchases shares from the estate.
Make it legal
- All founders sign before any significant work begins.
- Each founder keeps a signed copy.
- Review annually as the company grows.
A state-specific founders agreement tailored to your startup takes about ten minutes.