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Founders Agreement

A founders agreement is an official contract or a legal agreement executed between the co-founders of the company while setting up a business. This agreement elucidates the roles, rights and duties, responsibilities, ownership, liabilities, and investment proportion of each founder.

  • A founders agreement should be made in the written format, not oral
  • Two or more partners jointly can enter into the founders agreement called co-partners/ parties
  • All co-founders will enter into the agreement exactly while incorporating the business or company.

The objective of the founders agreement is to avoid disputes regarding business, which may arise over time between co-founders. This agreement apparently set out the strategy of the founders, who should act within the ambit and should follow the mandatory provisions laid on.

Founders agreements also help in tackling uncertain occurrences like the death of the co-founder, resignation, which directly affects the sustained growth and smooth running of the business or firm.

Documents Required for Preparation of a Founders Agreement

  • Address proof of all co-founders
  • Identity proof of all co-founders
  • Identity proof of witnesses
  • A clear objective of the company
  • The number of equity shares of each co-founder
  • The overall percentage of shares of each co-founder.

Procedure for Drafting a Founders Agreement

The procedure for drafting the founders agreement involves the following steps

  • Step 1: The draft of the founders agreement is prepared by including all the required fields, like objectives of the company, terms, and conditions to be followed by the co-founders
  • Step 2: Once the drafting process is complete, check if all mandatory provisions have been included, with no ambiguous clauses
  • Step 3: Add additional information that has to be furnished in the agreement, if required
  • Step 4: The final draft should be acknowledged by all the cofounders, that it has been scrutinized with acceptance of the aforementioned agreement
  • Step 5: Once all co-founders have agreed to the agreement, it should be notarized on a non- judicial stamp paper
  • Step 6: After notarizing, get the signature of all the co-founders on the agreement
  • Step 7: Before entering into the agreement, get expert guidance to avoid disputes.