Drafting Co-Founders Agreement

INTRODUCTION

A founders’ agreement or a Co-founders agreement isa form of contact between the first owners of an entity. The document entails also essential details regarding the responsibilities, duties, rights, ownership, etc. of the founders. This agreement is drafted and executed usually at the time of incorporation. It helps remove any ambiguity or provide swift resolve to a conflict that may arise in the future.

It is ideal to have a co-founder’s agreement as it also pushes the drive towards achieving the goals and objectives of the company as it clearly demarcates the role and responsibility of each founder in the company.

PROCESS

The process of drafting a co-founders agreement entails the following:

1. Name of the Company: The Agreement must begin with the name of the entity.
2. Identification of Parties: It should identify all the founders of the company and list details like their name, address, DIN and other relevant information.
3. Capital contribution and ownership: The Founders Agreement should specifically clarify the contribution of each founder and the extent of their ownership/liability in the company.
4. Roles and Responsibilities: the agreement should specify the job each founder has to perform. It has to mention their role and designation in the company, and also list the activities and responsibilities that are annexed with it. The agreement has to specify if a founder is a silent participant and who just assumes the role of an investor and does not participate in day to day management of the company.
5. Compensation: The agreement should specify the remuneration given to each founder for the role they assume in the company. It should also provide for the benefits that are provided along with basic compensation.
6. Provisions for conflict resolution: It should ideally have a clause for arbitration for when there is any dispute between the founders.
7. Exit: It should list out the process to be followed in the event of exit by a founder.
8. Intellectual Property: This clause should address the issue of assigning intellectual property rights. It is based on this clause that it is decided that whether the invention or creation by the founder restricts the rights to such founder or whether such creation would be deemed to be made by the company.
9. Voting: The agreement must also specify the decision making process and the voting power given to each founder. Ideally the voting rights are proportional to ownership. This means that the share or portion of ownership would determine the voting power and the value of vote for each partner.

ADVANTAGES / FEATURES

1. A founders agreement addresses issues critical to the functioning of the business
2. It helps in facilitating quick dispute settlement between founders
3. It helps give direction the company
4. It helps in removing ambiguity as to the roles and responsibilities of each founder

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