Starting a new business off the ground it is essential to have a clear agreement amongst the company’s founders. It’s important to discuss a handful of key issues that are critical to your ability to safeguard the future viability of your new enterprise and to raise venture money.
Co-Founders’ agreements is an official contract that is signed between all the co-founders of a firm. It is the product of conversations that should take place among a company’s founders at the early stages of formation rather than later in the life of a company.
Co-Founder’s Agreement states three key issues :
- All the roles and responsibilities of the founding team,
- Equity and ownership
- Initial investments made by each of the founders of the company.
What is the importance of Co-Founder’s Agreement in a Startup?
Generally, when we are looking for a startup team we turn towards family members, trusted friends, colleagues. We have an inherent trust in the relationship with the other member or founder.
But in some time differences arises due to sharing in the roles and responsibilities or a different point of views. The best solution to avoid such issues is to have a co-founders’ agreement in place since the very inception. This formal written agreement covers all the important issues about running the business. Co-Founder’s Agreement helps to prevent future disputes and differences.
- Definition of the business
- Details of capital raised (by founders and investors)
- Ownership details (in the company)
- Roles and responsibilities of each of the co-founders
- Compensation (salary drawn by each of the co-founders)
- Details of exit formality for founders
- Dissolution of the firm
- Details of dispute resolution
It is better to have a written format of the Co-Founder’s Agreement than an oral contract. It should be drafted with the help of a legal team that will make sure of all the loopholes that can be exploited.