Create the Ideal Founders Agreement with GTS
Founders Agreement – Overview
A founders agreement is a formal contract between the co-founders of a company, established when setting up a business. It outlines the roles, rights, duties, responsibilities, ownership, liabilities, and investment contributions of each founder.
● Written Format: The agreement should be documented in writing, rather than being oral.
● Co-Partners: It is established among two or more partners, referred to as co-founders or parties.
● Incorporation Stage: All co-founders typically enter into the agreement during the incorporation of the business.
The primary aim of a founders agreement is to prevent disputes that may arise over time among co-founders. It sets the framework for how founders should operate and comply with relevant legal provisions. Additionally, it addresses potential uncertainties, such as the death or resignation of a co-founder, which can significantly impact the business’s stability.
- Benefits of a Founders Agreement
1. Business Entity Definition: Clearly defines the type of business entity to be established.
2. Business Plans: Outlines the vision, mission, and both short-term and long-term goals.
3. Roles and Responsibilities: Designates specific roles for each founder, minimizing overlap and confusion.
4. Ownership Structure: Specifies the ownership percentages based on initial contributions, preventing future conflicts.
5. Compensation Provisions: Outlines consequences for violations of the agreement, including compensation structures.
6. Expulsion Clauses: Provides a framework for expelling co-founders involved in misconduct.
8. Confidentiality: Includes clauses to protect business secrets and proprietary information.
- Documents Required for Preparation
● Address proof of all co-founders
● Identity proof of all co-founders and witnesses
● Clear objective of the company
● Number of equity shares for each co-founder
● Overall percentage of shares for each co-founder
- Procedure for Drafting
1. Draft Preparation: Create an initial draft including all necessary fields.
2. Review: Ensure all mandatory provisions are included, with no ambiguous clauses.
3. Add Information: Include any additional relevant information as needed.
4. Acknowledgment: Have all co-founders acknowledge the final draft.
5. Notarization: Notarize the agreement on non-judicial stamp paper.
6. Signatures: Collect signatures from all co-founders.
7. Expert Guidance: Seek legal advice to minimize potential disputes.
- Key Terms of a Founders Agreement
● Founders: Names and roles of each co-founder.
● Ownership: Equity ownership structure and percentages.
● Vesting: Vesting schedule for equity ownership.
● Management and Control: Decision-making processes and responsibilities.
● Intellectual Property: Ownership and protection of IP.
● Confidentiality: Obligations to protect proprietary information.
● Termination and Exit: Circumstances and processes for co-founder exit.
● Dispute Resolution: Procedures for resolving disputes.
- Founders Agreement Template
Founders Agreement Summary
Date: [DD/MM/YYYY]
Company: [Company Name]
Founders: [Founder Name], [Founder Name]
Business Address: [Business Address]
Business Venture: Founders have established [Company Name].
Initial Capital: Each Founder contributes ₹₹₹ as non-refundable capital.
Ownership Structure: Shares distributed as [Specify share distribution].
Voting Rights: Based on ownership percentages.
Vesting Schedule: Shares will vest according to a mutually agreed plan.
Intellectual Property: All rights assigned to the company.
Amendments: Changes to the agreement must be in writing.
Resignation: Founders may resign with notice, receiving their positive capital balance.
Miscellaneous:
Confidentiality: Protect confidential information.
Dispute Resolution: Mediation and arbitration for disputes.
Entire Agreement: Captures the full understanding between the parties.
Signatures:
Founder #1: [Founder Name]
Founder #2: [Founder Name]
- Why Choose GTS for Your Founders Agreement?
● Expertise in executing legal work for over 1000 companies monthly.
● Seamless interactions with government processes.
● Includes two rounds of revisions in the original price.
● Experience convenience and ease with our services.
● Our lawyers will incorporate any necessary changes to the agreement before finalization.
- Frequently Asked Questions (FAQs)
Yes, it is essential to have a founders agreement drafted. This document helps prevent disputes by clearly outlining the roles, responsibilities, and ownership stakes of each founder. It also includes important exit clauses, ensuring that no founder can be ousted without following agreed-upon procedures. Overall, a well-drafted founders agreement provides a solid foundation for the business and helps maintain harmony among co-founders.
Yes, a founders agreement is legally enforceable. When it is properly notarized on non-judicial stamp paper and the required fees are paid, it can be upheld in court. This enforceability ensures that the terms agreed upon by the founders are binding and can be legally enforced if disputes arise.
The need for a founders agreement arises from several key factors: Clarity of Roles and Responsibilities, Protection of Interests, Dispute ResolutionExit Strategy, Confidentiality and Non-Compete Clauses, Long-Term VisionOverall, a founders agreement is crucial for setting clear expectations and preventing future disputes.
Yes, there can be penalties for breaching a founders agreement, and these can vary based on the nature of the breach. Common consequences include:
Loss of EquityFinancial Penalties, Legal Action, Termination of Involvement, Reputation Damage
It’s essential for the founders agreement to clearly outline the penalties for breaches to avoid ambiguity and ensure all parties understand the consequences.
The key differences between a founders agreement and a partnership agreement are A founders agreement is a legal document that delineates the roles, responsibilities, and ownership stakes of co-founders within a company. In contrast, a partnership agreement is an official contract that defines the obligations, rights, and ownership of two or more partners operating a business together. Although both agreements address similar topics, a founders agreement is primarily utilized for startups or new ventures, whereas a partnership agreement is applied in the context of established business partnerships.
Yes, a company can have both a founder and co-founders. The founder is typically the individual who initiates the creation and early development of the company, while co-founders share in the responsibilities, ownership, and vision of the business alongside the founder.
No, the terms founder and owner are not synonymous. A founder is an individual involved in creating and developing a company, while an owner holds legal ownership of it. Although a founder can also be an owner, they may choose to sell or relinquish their ownership stake in the company, making the two roles distinct.
A founder is an individual involved in the creation and initial development of a company, often taking on a visionary role. In contrast, a partner is someone who collaborates with one or more individuals in running a business. While founders can have partners, the term “founder” is commonly associated with startups or new ventures, whereas “partner” typically refers to individuals engaged in an established business partnership.
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