The Enlightened Esquire

If there are multiple founders, establishing a written founders agreement is essential before any significant work begins. Relying on templates won’t be enough. While the conversation may be uncomfortable, the lack of a written agreement can lead to far more significant issues.

Key elements the agreement must address include:

• Equity splits and the conditions that trigger them. While equal splits are common, they are not always appropriate.
• Vesting terms. It’s crucial to clarify what happens to a founder’s equity if they leave after a few months.
• Decision-making authority. Will decisions require unanimous consent, a majority vote, or a tie-breaker?
• Intellectual property. Any creations made prior to the entity’s formation must be assigned to the entity in writing.
• Exit procedures for when a founder leaves voluntarily, is terminated, passes away, or becomes incapacitated.

The timing of this conversation can significantly impact its outcome. Discussing these matters early on tends to foster trust and collaboration, whereas waiting until later can lead to disputes with costs escalating into six figures.

Engage in this important conversation now, document the results, and then move forward.

First shared on LinkedIn by Deja Correia, J.D. Educational only; not legal advice.