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Founders Agreement
A founders’ agreement is a legal contract between the founders of a company that outlines the terms and conditions of their business relationship. It typically covers key issues such as ownership, roles and responsibilities, decision-making, intellectual property, and exit strategies.
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Overview of Founders Agreement
A founders agreement is a legal contract between co-founders that outlines their roles, responsibilities, ownership, and investment proportion when starting a business. It’s important to have this agreement in writing rather than verbally agreed upon. All co-founders must agree to the terms when incorporating the company.
The purpose of a founders agreement is to prevent future disputes among co-founders by establishing clear guidelines and strategies for them to follow. It can also address unforeseen events, such as the death or resignation of a co-founder, which could impact the business.
Advantages of Founders Agreement
| Establishing the Business Entity | The founders agreement outlines the type of business entity to be established by the co-founders, setting the direction for the company |
| Outlining Business Plans | This agreement describes the vision, mission, and goals of the entity, which helps co-founders work towards a common goal |
| Designating Roles and Responsibilities | A founders agreement assigns roles and responsibilities to each co-founder, helping avoid overlapping roles and potential conflicts |
| Structuring Ownership | The agreement specifies the structure of ownership, outlining the percentage of equity shares held by each co-founder, which helps avoid future conflicts |
| Decision Making Process | The agreement provides a procedure for handling ideological conflicts between co-founders and outlines the voting system, defining the value of votes for each founder |
| Compensation Provisions | The agreement outlines the scheme of compensation to be made in case a co-founder violates the provisions mandated, which ensures fairness among co-founders |
| Expulsion of Co-founders | The agreement provides a structure for dealing with co-founders who engage in fraudulent activities and outlines the process for reverting appropriate funds |
Registration Process
Drafting a founders agreement can be a complex process, but with the right guidance, it can be simplified. Here’s a step-by-step guide to help you draft a founders agreement using legal suvidha:
Step 1: Prepare the Draft: Create a comprehensive draft of the founders agreement that includes all necessary fields such as company objectives, terms and conditions for co-founders.
Step 2: Review and Revise: Once the draft is complete, review it to ensure all mandatory provisions are included and there are no ambiguous clauses.
Step 3: Add Additional Information: Add any additional information or provisions that may be necessary.
Step 4: Obtain Acknowledgement: Once the final draft is complete, ensure all co-founders acknowledge and accept the agreement.
Step 5: Notarize the Agreement: Notarize the agreement on a non-judicial stamp paper to make it legally binding.
Step 6: Obtain Signatures: Obtain signatures from all co-founders on the agreement.
Step 7: Seek Expert Guidance: Before finalizing the agreement, seek expert guidance to avoid disputes and ensure all provisions are legally sound.
Required Documents
1. Address proof of all co-founders
2. Identity proof of all co-founders
3. Identity proof of witnesses
4. A clear objective of the company
5. The number of equity shares of each co-founder
6. The overall percentage of shares of each co-founder
FAQ's Founders Agreement :-
A founders’ agreement is a legally enforceable document that describes the obligations and rights of each owner of a company. It is often in writing. It could be a separate document or it could be included in a partnership agreement, an LLC operating agreement, or corporation bylaws.
A shareholder’s agreement, which is used by corporations, is comparable to the operational agreement, which is what limited liability firms use. The founding agreement is more private to the particular founders, but the operational agreement is more about corporate governance and good business practise.
The co-founder of the company must operate within the boundaries set forth in the Founder’s Agreement. This document also guarantees that a co-founder will remain dedicated to the business and won’t pursue other jobs.
To distribute a startup, two or more people frequently work together. A co-founders agreement is one of the many formalities that must be finished before a firm may launch. Startup founders should not skip this stage because it will protect them if things do not turn out as expected.
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