Introduction
A Founders Agreement means an official contract or legal agreement which is signed between the co-founders of a Firm. Each founder of the company stated all the responsibilities, ownership, and initial investments in the Founders Agreement. At the time to make founders agreement at the incorporation stage of enterprises advised to write down all the responsibilities and roles of each of the co-founders. Mainly, an agreement is made for avoiding the ambiguity that may arise in the enterprise in the future at the time of incorporation. It also introduces the expectations and goals of all the co-founders by assigning specific role and responsibility to each of them for the betterment of the enterprises.
Founders Agreement
It is an official contract that is executed between the co-founders of the company while originating the business. This agreement includes the roles, responsibilities, rights, duties, etc. to the proportion of each founder. A founders’ agreement should be made in written form not oral. Two or more partners jointly enter into the founders’ agreement called co-partners or parties. All co-founders will enter into the agreement when exactly starts any incorporation of the company or business.
The objective of the Founder Agreement
The objective of the founders’ agreement is to avoid all the business disputes which may arise between co-founders. It is probably set out the strategy of the founders who should act within the boundary and should follow the mandatory provision which is put on. It also helps in tackling uncertain occurrences like the death of the co-founder, and resignation which directly affect the continued growth and smooth running of the business or firm.
Benefits of the Founders’ Agreement
There are many benefits of the Founders’ Agreement but some benefits are given below:
1. Determining the Type of Business Entity: The Founders’ Agreement will clearly mention the nature and type of entity which should be established by the co-founders and followed the proper path by the entity.
2. Outlined Business Plans: This agreement express the vision and mission of the entity and laid down the short-term and long-term goals to be achieved within a specific period of time.
3. Designating the Roles and Responsibilities: There will be projecting the role and functions between co-founders without having a proper framework of the assigned roles. It is important to nominate the roles and responsibilities given to the founders according to their stream of mastery like marketing, operations, finance, etc.
4. Structure of Ownership: It will clearly mention the structure of ownership relating to the initial contribution made by the cofounder or the in case of a company, the percentage of the equity shares held by the co-founders for avoiding any future conflicts between them.
5. Decision Making: At certain times, there will be an ideological conflict between co-founders, then they handled it through the proper decision-making process. The founders’ agreement will formulate the procedure to be followed during the decision-making process. If the voting system is adopted then it should also define the value of the votes for all the founders and in case of a deadlock situation give the solutions.
6. Compensation Provisions: If any cofounders have violated the provision mandated then under this agreement carried out the scheme of compensation. The amount of the compensation to be made will be mentioned for all cofounders.
7. Expulsion of Co-founders: Any co-founder can expel from the company to take care of fraudulent activities like misappropriation of funds, sexual harassment, and getting employment with other organizations. This agreement assures the proper structure on how to deal with this situation and solve out with the appropriate funds to be returned to the expelled co-founder.
8. Confidentiality: In the founders’ agreement have a separate clause on confidentiality which makes obligations for the founder to not reveal the secret of the business.
Documents Required for Founders’ Agreement
There are some documents given below which are required for the Founders’ Agreement:
Address proof of all co-founders
Identity proof of all co-founders
Identity proof of witnesses
A clear objective of the company
The number of equity shares of each co-founder
The overall percentage of shares of each co-founder.
Procedure for Drafting the Founders’ Agreement
There are some steps to follow for drafting the Founders’ Agreement. They are given the following:
At the time of drafting the Founders’ agreement prepared all the important or required elements like the objective of the company, the terms, and conditions of the company which are followed by the co-founder.
Once the drafting process of the founders’ agreement is complete then check all the mandatory provisions have been included with no ambiguous clauses.
If required to add any additional information that has to be equipped in the agreement.
The final drafting of the Founders agreement should be acknowledged by all the co-founders that it has been explored with the acceptance of the aforementioned agreement.
If all the co-founders have agreed to the agreement then it should be notarized on a non-judicial stamp paper.
After notarizing to get the signature of all the co-founders on the agreement.
Get expert guidance before entering into the agreement to avoid disputes.
Conclusion
It concluded that Founders Agreement means an official contract or legal agreement which is signed between the co-founders of a Firm. Each founder of the company stated all the responsibilities, ownership, and initial investments in the Founders Agreement. At the time to make founders agreement at the incorporation stage of enterprises advised to write down all the responsibilities and roles of each of the co-founders. Two or more partners jointly enter into the founders’ agreement called co-partners or parties. The founders’ agreement is to avoid all the business disputes which may arise between co-founders.
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