Co-Founders’ Agreements: Don’t Wait For A Tiff To Arise

Co-Founders’ Agreements: Don’t Wait For A Tiff To Arise

Aug 18, 2018 Blog by admin

Aren’t arguments, miscommunications, tiffs a very common human phenomenon? I mean, they can happen any time and between any one. If this is a commonly accepted fact, why do we think relationship between co-founders is anything different? Why would co-founders be immune from this occurrence?

Co-founders essentially share the most vital information with one another. Their individual and collective contribution, decides the future of the company. Co-founders are practically growing with each other. While on this journey, it is only obvious to have a fall-out. In this situation arriving at a decision is the only healthy solution. But, how will one come to a decision? Who will define the parameters of right and wrong?

How they wish, this would have been given a thought earlier.

A founder’s agreement is often perceived as a very unessential document and never finds its place in priority list. However, this is the only document which will be your bible in case things don’t work as perceived, between you and your co-founder. It is a document which will highlight the role every co-founder is expected to play, individual and collective deliverables, timelines, compensations, equity to be given ( and also, how is it to be given? Read our next blog on VESTED EQUITY to know more) and most importantly , how is a dispute to be resolved?

One basic difference between a novice Entrepreneur and an experienced entrepreneur is that the latter has learnt the task of foreseeing issues and difficulties a company can have. They would never overlook long term challenges for short term gains. The last thing Entrepreneurs want to do is invest time in is dispute resolution. It not only creates a lot of mental trauma but also acts as an hindrance in growth of your venture. Having a founder’s agreement in place will ensure that dispute resolution is simpler and less chaotic.

Founder’s agreement plays one more vital role in a company, which people realize a little too late. While Start-ups go for fund raising, founders agreement is one document investors like to assess in the due diligence process. It gives them an overview about the relationship co-founders share, division of work and money. Founder’s internal clarity is a very important parameter , for an investor to trust the company.

We are listing some of the essential clauses you MUST look out for in a Founder’s agreement.

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