is a contract between two or more people who have founder a company.This contract defines the ownership,initial investments and responsibilities of each co-founder.It safeguards the interests of all the co-founders in case of disputes and arisal or problems. Co-founder agreement provides protection and binds all the partners to the agreed terms for the business.
Co-founders agreement at a very early stage of business, in fact even before incorporation, should enter into an agreement which governs the nature and functioning of their business. This is extremely important especially for businesses which are starting to operate but has not been incorporated yet. After incorporation,the co-founder agreement many of the issues discussed here will be taken care of by the incorporation documents such as Articles of Association.
The purpose of the agreement is to make the understanding the co-founders have regarding the functioning of their company and relationship and obligation between co-founders legally binding through a formally written agreement. Such an agreement is called the co-founder’s agreement.
The formation of such an agreement requires an open discussion between the partners regarding their apprehensions, fears, outlook, aspirations and all arrangements involving the start up.the co founder agreement The objective of the agreement is to minimize the possibility of debilitating surprises in the future when the company is functional in terms of inter co-founder relationship.
If you have a startup which is in a pre-incorpration stage, or if you just have an idea and a co-founder or two, it is a great time to read this article and think of some of the issues described here.
Statistics say that an average couple argues 312 times in a year and that 1 out of 5 of these couples are willing to end the relationship over it. Startup founders are more or less like a married couple and we are sure the number of times cofounders argue wouldn’t be really far.
While having a co-founder agreement is always beneficial when running a startup as they can be a huge emotional, moral and physical support to you and your baby (startup), there are often times when co-founders might also get into chaotic situations like conflicting decisions, duplication and delegation of work, delayed approvals and so on. Often, before the founders realise, these arguments result in fallouts and more than 62% of startups fail due to co-founder conflict.
It is always better to clearly define everything beforehand and imperative that the founders set aside some time to discuss and work out a co-founder agreement to avoid any kind of confusion or chaos at later stages. Because any dispute at a later stage might force a business divorce.
The idea of having this co-founder agreement is great, but not everybody is aware of what actually goes into it, what are the essential clauses and components. Here are the essential requirements of a co-founder agreement.
A co-founder agreement is an integral part of setting up a business entity as it describes and defines the roles,duties,authority and power of each and every co-founder of the business.Without a co-founder agreement no claims can be made and no responsibilities can be placed on particular people to be held responsible of co-founder agreement.Co-founder Agreement are the clauses and schedules that set out the individual shareholdings of the co-founders.
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3 main contents of the co-founder agreement are as follows:
1.Roles and responsibilities of the co-founder
This involves answering what each individual will do, for what they might be responsible,and to what extent they might be responsible.It helps give individuals more significant defined roles.This makes placing accountability easier and also helps divide work into tasks that can be easily fulfilled.
2.Decision making/Operating to be done
Covering the method through which both simple and substantial decisions should be made.That is which decisions hold more importance than others and also which decisions can be taken by individuals and which need to be taken as a group (and how to deal with a tie in votes of the group).
Some decisions may be very common and the founders may just agree on one specific way of doing the work such as a hiring or firing procedure. furthermore it is helps in determining what happens in different situation before hand making decision process less time and effort consuming.Co-founder Agreement needs to establish how each director is appointed, explain whatever powers they have and clearly establish their duties and obligations.
3.Ownership of the co-founders
This determines who owns how much of the initial equity in the company.Any way to determine the best way to determine ownership will come under this co-founder agreement.The most common method for splitting ownership is known as “the rule of N,” or more specifically the rule of 1/N, where N is the number of founders involved. In this method, the founders simply split the equity equally among each other from the start.
Co-founder Agreement is a legally binding document entered into by the Co-founders of a company, which governs their business relationship and arrangements. A Co-founder Agreement also sets out the rights, responsibilities, liabilities and obligations of each shareholder. In general, a Co-founder Agreement regulates matters that are not considered in the company constitution.
A Co-founder Agreement is one of the most important documents you, as a co-founder agreement will enter into at the outset of your company setup. Getting the right legal advice upon entering into a Co-founder Agreement is extremely important to avoid common legal pitfalls. This article will explain some of the important provisions for which you should keep an eye out.
Template/contents of co-founder agreement
A template helps give guidelines to making a co-founder agreement. This helps in having a basic idea of what the co-founder agreement should consist of and helps avoid missing out important details that are essential to any co-founder agreement. The following heads can be used in drafting a co-founder agreement:
Additional capital contributions
Expenses and budgeting
Ownership of the company
Management and approval rights
Duties to the company
Project-related intellectual property
Third-party offer to invest
Resignation and removal of founders
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Roles And Duties
The main roles and duties of a co-founder are:
Identify the idea of what the consumer needs and what will the product do and how to design it properly.
2.Technical team member
Develop and work closely with the product.The ability to execute quickly by developing processes that allow experimentation without having to start from scratch each time the product is changed slightly.
3.Marketing and sales team member
Identifying right channels for distribution and communication of the product in hand.They need to evaluate what and how they need to communicate to the customers and how they will mae their product available for the targeted customer base.
4.Chief executive officer
Being the face and voice of the company.Maintain the reputation of the company and ensure that all objectives and goals are being achieved with proper management techniques.
Co-founder job description:
a.Develop strategies for growth and productivity of operations.
b.Develop brand and messaging to attract and retain customers.
c.Develop and manage budgets for marketing, operations, and technology.
d.Develop and manage supply chains.
e.Managing employees by recruiting training and retaining them
g.Manage operations of the organisation.
h.Meet revenue and profit targets.
f.Excellent writer and verbal communicator
and many more skills to be a successful business founder
Depending on requirements
“LinkedIn is a business-oriented social networking service. Founded on December 14, 2002,and launched on May 5, 2003, it is mainly used for professional networking. co-founder agreement As of 2015, most of the site’s revenue came from selling access to information about its users to recruiters and sales professionals.As of March 2016, LinkedIn has more than 433 million accounts, out of which more than 106 million are active.” adapted.
This element deals with what each individual will do, for what he will be responsible and the extent of this responsibility. Co-founder agreement should keep in mind that one of the biggest reasons for con-founder disputes is over the role being played by co-founders in growth of the business.
co-founders can be very sensitive unless there is a clear co-founder agreement on the same. It can be expected that some founders may leave nd have to be replaced and even if no one leaves, it may make sense to take in new co-founders.
co-founder agreement should not become a bone of contention between co-founders and lead to decision paralysis or disputes, especially since induction of new co-founder agreement by giving such person equity in the business will mean reduction of equity/ shareholding of other co-founders in the business.
While founders may play broad roles in the beginning of the company’s functioning, keeping the future in mind the significant role any individual may play in the future must be designated from the very beginning, in this co-founder agreement.
The company was founded by Reid Hoffman and founding team members from PayPal and Socialnet.com. It plays a vital role in providing information about various aspects of business and it also helps in making connections.