Founder’s Agreement
A founder’s agreement is a crucial legal document for any startup in India. It establishes the rights, responsibilities, and ownership structure among the founders of a company.
Key Elements of a Founder's Agreement:
- Parties Involved: Identifies all the founders and their respective contributions (financial, sweat equity, etc.) to the company.
- Company Formation: Specifies details about the company formation process, including the type of business entity (sole proprietorship, partnership, limited liability company) and initial ownership percentages for each founder.
- Vesting Schedule: Outlines a vesting schedule for founder equity. This determines the timeframe over which founders gradually gain full ownership of their allocated shares, often with cliffs (periods where no vesting occurs) to incentivize staying with the company for a certain duration.
- Roles and Responsibilities: Defines the roles and responsibilities of each founder within the company, ensuring clarity and avoiding potential conflicts.
- Decision-Making: Establishes procedures for making major company decisions, such as funding rounds, product development strategies, or hiring key personnel.
- Dispute Resolution: Outlines a mechanism for resolving disagreements between founders, minimizing disruption to the business.
- Confidentiality: Includes confidentiality clauses to protect sensitive company information and intellectual property.
- Non-Compete Clause (Optional): May include a non-compete clause restricting founders from working for competing businesses after leaving the company (subject to legal limitations in India).
- Exit Strategy: Defines the process for a founder to exit the company, whether through voluntary departure, buyouts by other founders, or death/disability.
Benefits of a Founder's Agreement:
Crafting a Founder's Agreement:
There’s no one-size-fits-all template for a founder’s agreement. However, some general recommendations include:
- Tailored to Your Startup: The agreement should be customized to reflect the specific needs and circumstances of your founding team.
- Seek Legal Advice: Consulting with a lawyer experienced in startup law is highly recommended to ensure the agreement is legally sound and enforceable.