If you’re starting a business with another person or a group of people, you’ll be sharing ideas, divvying up equity, and investing money together.  For startups, resolving questions of equity, ownership and control is critical to the company’s growth and success.  A founders’ (or shareholders’) agreement (learn more about shareholders’ agreements here) can be an effective and efficient way to address these issues from the beginning and help protect the company from disputes and conflicts later.

A founders’ (or shareholders’) agreement (learn more about shareholders’ agreements here) defines the relationship between key people in the startup, usually the founders and first shareholders.  The agreement can do a variety of things, but often includes: 1) allocating each founder’s equity stake; 2) defining each founder’s responsibilities in the company: 3) establishing transfer restrictions on founder shares; 4) setting vesting schedules and/or acceleration provisions; and 5) explaining what happens to a founder’s interest in the company if the founder leaves voluntarily or is fired.

The process of creating a founders’ agreement can be very helpful to a startup , as it allows the founders to brainstorm potential problems and set policies to prevent those problems from arising.

Once you have a founders’ agreement in place, you may find that it helps your startup to stay focused on its growth and investment plan.  Also, investors like to see founders’ agreements as such agreements demonstrate that founders have considered and resolved critical questions for the startup.

- Claire Kalia

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