{"id":76490,"date":"2020-08-24T18:40:09","date_gmt":"2020-08-24T13:10:09","guid":{"rendered":"https:\/\/simpledocsbu.wpengine.com\/?p=76490"},"modified":"2022-11-24T15:38:33","modified_gmt":"2022-11-24T10:08:33","slug":"create-founders-agreement-document","status":"publish","type":"post","link":"https:\/\/www.revv.so\/blog\/sales\/create-founders-agreement-document\/","title":{"rendered":"Document diaries: The Story of the Founder\u2019s Agreement"},"content":{"rendered":"\n

There\u2019s no rule that says you must have 2 or more founders to start a venture. Conventional wisdom, however, says that having two or more founders at a startup significantly increases the chance of success. The icing on the cake is when the founders are a diverse bunch, each with their unique strengths to help build the business. But right there also lies a conundrum! When two founders think and operate differently, there will be disagreements. Every business goes through challenges and tough times, and disagreements turn nasty leading to fallouts. This is where a founder\u2019s agreement document comes in. The agreement articulates the responsibilities, ownerships, and initial investment by each founder. Also captured is the process to manage exits as well as conditions that can lead to one, while keeping the company\u2019s interest paramount. <\/p>\n\n\n\n

The meet and greet <\/strong><\/h3>\n\n\n\n

Bruce Hill, 40,\u00a0 is an entrepreneur. He recently quit his job to start a management consultancy firm, with his co-founder Gwen Wilson. Both Bruce and Gwen have over 15 years of work experience and hold expertise when it comes to improving the efficacy and profitability of an organization.<\/p>\n\n\n\n

\"The<\/figure>\n\n\n\n

They both conduct themselves professionally in all work matters. Be it disagreements over a particular hire or discussion over internal process changes, they do what\u2019s best for the firm. But businesses<\/a> don\u2019t run smoothly over verbal agreements and Bruce understands that very well.\u00a0\u00a0<\/p>\n\n\n\n

He spoke to Gwen about drafting a founder\u2019s agreement<\/a> document between them. The agreement will outline each of their responsibilities and ownership and can act as a mediator in situations of disagreements.\u00a0<\/p>\n\n\n\n

\"Drafting<\/figure>\n\n\n\n

Why is it important to create a founder\u2019s agreement?<\/strong><\/h3>\n\n\n\n

A founder\u2019s agreement<\/a> is a legally binding document that consists of several key issues about running a business<\/a>. It helps settle disputes resulting from differences between the founders. The agreement is designed to protect each member\u2019s interest and avoid future conflicts. It is advised to draft this agreement at the incorporation of the new venture.\u00a0<\/p>\n\n\n\n

Mr. Bruce is all on board to start the drafting process. He has been researching about the founder\u2019s agreement. How to draft a  founder\u2019s agreement?  What can they include and whose help do they need? What should be included in the agreement and what not? Too much information has left them dazed and confused.<\/p>\n\n\n\n

Founder\u2019s agreement – what do we include?<\/strong><\/h3>\n\n\n\n

Here are some of the key elements that Mr. Bruce should focus on when drafting the agreement.<\/p>\n\n\n\n

Primary responsibilities <\/strong><\/h4>\n\n\n\n

Mr. Bruce should ensure that there is clear outlining of their roles and responsibilities. He understands that it is critical to collaborate and create a culture that is open and shared but he or Gwen individually cannot be in charge of everything. The founder\u2019s agreement will help them establish clear lines of primary responsibilities and enable a functional management system for the smooth running of their business. <\/p>\n\n\n\n

Ownership structure<\/strong><\/h4>\n\n\n\n

The agreement should clearly define the ownership structure of the startup between the founders. This will include the percentage of the initial capital contributions made by each founder and the number of equity shares that each of them holds. It should also specify the plan of action for equity ownership in case of the death or removal of a founder. <\/p>\n\n\n\n

Equity ownership and vesting <\/strong><\/h4>\n\n\n\n

It is critical that some restrictions are laid on the ownership and transfer of shares by the founders.  Here are a few things that Mr. Bruce should focus on <\/p>\n\n\n\n