Ok founder, you have a great idea, found the right partners, have a well design business plan, and investors are already lurking. Great!
But have you sat down with the other partners and decided the role each will have and what are your responsibilities and rights? I know that is not the fun part, but it is crucial that you have it all established.
“How do you I do that?” You ask…
Well, when starting a business with more than one person is important to lay down from the very beginning the fundamentals of that business relationship, outlining key factors such as the responsibilities, rights, obligations and liabilities of all founders. That is what a founder’s agreement does.
Ultimately, they are made to protect each founder’s interests and guarantee that you are all in agreement regarding the business structure, so you can focus on actually growing the company, without having to worry about the how’s and what’s and what if’s.
Breaking it down, a founders agreement:
- Clarifies each owner’s role in the business;
- Provides clarity if and when a partner wants to enter or exit the company;
- Sets the goals for the future;
- Provides a structure for resolving disputes among founders;
- Makes investment due diligence smoother.
And what should it include?
- Your business structure
- Initial capital contribution
- Precise roles, responsibilities and management structure
- Equity and vesting scheme
- Income Compensation Report
- Intellectual Property rights