What Is a Founders’ Agreement and Why Is It Important?

Starting a company with co-founders is one of the most exciting (and risky) parts of launching a startup. You’ve found your people, the idea feels solid and you’re ready to start building, and in the early days, when everything’s fresh and exciting, it’s easy to assume that everyone’s aligned just because you’re all equally enthusiastic. But, the truth is – as any seasoned founder will tell you – things can change, and they can change quickly.

Founders leave, roles evolve – one person might end up doing far more than the others and there may have been no way to see that coming when you first started.

Naturally, equity can become a point of tension. And when there’s no written agreement in place, what began as a promising partnership can dissolve into a frustrating and costly dispute.

That’s where a founder’s agreement comes in. It’s not just a formality or something for later – it’s a practical, powerful tool that helps you define expectations, prevent conflict and protect your startup from day one. It’s about not only having everything in writing, but going through the process of writing it up and signing it often makes people confront questions they may otherwise have brushed aside.

Whether you’re working from a coworking space in London, launching a fintech in Berlin or bootstrapping from a café in Dubai, having a clear agreement between founders is essential.

 

Why Is a Founders’ Agreement So Important?

 

Many people think that they, and their business, is different. But the truth is, most companies feel good at the outset – generally, this is when everything feels balanced and fair. But part of the territory is the fact that things can change quickly in startups. And although you can’t predict exactly what will change, how it’ll change or what that will mean, you should always anticipate that things won’t stay the same forever. And, without a written agreement, these issues can turn messy, fast.

Here’s why a founder’s agreement is so important:

• Clarity and alignment: It ensures everyone is on the same page about roles, time commitments and expectations, and it provides guidelines on how to shift things if anything changes in future.

• Prevents disputes: It gives you a framework to handle disagreements before they spiral into major conflicts, because at the end of the day, there will always be some disagreements.

• Investor confidence: Investors love clarity. Having a founder’s agreement shows that you’re organised, serious and prepared. After all, they also want you to get along with each other – it’s better for business.

• Protects the business: It includes terms around equity, IP ownership and what happens if someone leaves – all essential for long-term stability.

 

 

What To Include In a Founders’ Agreement

 

Knowing you need the agreement is one thing, but what should you include? Here’s a basic guide:

1. Equity Split: How is ownership divided? Is it equal, or is it based on who brought what to the table? Whether that’s cash, IP or time? If it’s not equal, make sure everyone understands why and most importantly, that everyone agrees.

2. Roles and Responsibilities: What is each founder actually responsible for? CTO, CEO, marketing, operations – spell it out clearly to avoid blurred lines in future. You don’t want to have a “but that’s not my job” dispute.

3. Time Commitment: Are all founders working full-time? Part-time? Will that change over time? Include expectations around availability and dedication.

4. Vesting Schedule: To prevent someone walking away with a big chunk of equity early on, most agreements include a vesting schedule – typically over four years, with a one-year cliff. That depends on the startup, but make sure it’s defined.

5. Intellectual Property: Who owns the IP being created? Generally, it should be assigned to the company, not individuals, just to be safe.

6. Exit or Departure Terms: You may think that everyone’s locked in, but you also need to be realistic. What happens if someone leaves the business? How is their equity handled? Will the remaining founders have the right to buy it back? Figure it out before it happens.

7. Decision-Making Process: How will you make big decisions? By vote? Unanimously? Who has the final say? Agree on a structure to avoid gridlock.

Don’t Leave It Too Late

Lots of founders put off writing an agreement because it feels awkward – kind of the same way many people feel about prenups. It’s like you don’t trust your team. But the reality is, this is not the case, and unfortunately, most startups face founder disputes at some point – it’s just part of the job. And more importantly, the agreement isn’t about lack of trust – it’s about protecting your working relationship and setting yourselves up for success.

Even if you’ve already started building, it’s never too late to get a founder’s agreement in place. And if you’re a solo founder planning to bring someone on board, this is the perfect moment to think about it.