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What is a founder agreement?

New companies are often launched in a dorm room or created over drinks with friends or colleagues. Perhaps one person had the concept, but it took bouncing problems off of someone else to come up with workable solutions. This subsequently led to a new company where they are partners. Despite this casual setting for the birth of the new endeavor, it is a good idea to get an agreement of ownership in writing at some point early in the process.

Terms to hammer out:

  • What is the percentage of ownership for each party?
  • What are the roles and responsibilities of each party?
  • Is the percentage of ownership is based on continued involvement in the company?
  • Do other owners have the right to buy out a partner that leaves? If so, what is the rate?
  • Are the owners entitled to a salary? If so, how much?
  • How will important decisions be made? Will it be unanimous or majority?
  • Does everyone agree that the intellectual property is owned by the company?

A handshake may not cut it

An informal understanding between the founders may be the foundation of the company, but it is important to carefully document the arrangement. It is also important to careful about how plans are discussed and keep track of discussions involving ownership and equity stakes.

If there is a parting of ways, this needs to be communicated clearly in writing. Include an understanding of who owns the idea and how it came to being. Outline who owns what in the dissolution of the partnership. As with so many agreements, it is best to get it in writing so the owner does not end on the losing side of a lawsuit.

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