Founders agreement

curl -X POST https://dealroom.todo.law/api/v1/agent/contracts \
  -H "Authorization: Bearer drk_YOUR_KEY" \
  -H "Content-Type: application/json" \
  -H "Idempotency-Key: $(uuidgen)" \
  -d '{
    "contractType": "FOUNDERS",
    "governingLaw": "ENGLAND_WALES",
    "language": "en",
    "party": {
      "legalName": "Your company"
    },
    "counterparty": {
      "legalName": "The other company"
    },
    "inline": "md"
  }'

What it is and when it is used

A founders agreement is signed by the co-founders of a new venture, usually before or shortly after the company is formed. It is also used to put an existing informal partnership in writing, to add a new co-founder, or to prepare for a first investment round, when investors will review it.

It records the equity each founder receives and how that equity vests, the founders' roles and time commitment, the assignment of intellectual property to the company, how decisions are made and what happens when a founder leaves. The standard terms also commit the founders to form the company, set the rules for capital contributions and founder loans, impose confidentiality for three years after the agreement ends, defer salaries until the company has enough revenue or funding unless all founders agree otherwise, and state that the agreement does not create a partnership between the founders.

Who signs it and in which role

The agreement is signed by Founder A and Founder B, together "the Founders". Both sign in the same capacity, but each option is scored for its effect on each of them, because their interests can differ: for example, a founder who will be chief executive and a founder who joins later or keeps outside work.

The founders can fill in, as needed: the months allowed to move to full time (3 by default) and the minimum weekly hours before then (20), a debt amount above which founder approval is needed, Founder B's initial title (Chief Technology Officer by default), the window to exercise a buyback after departure (90 days), the length and compensation of a post-departure non-compete (12 months), the arbitral institution and seat, the court venue, and the binding step that follows a failed advisory board review (arbitration by default, or mediation or litigation).

Key clauses

Equity split

An equal split, a split based on each founder's expected contribution of time, capital, IP or expertise, or a dynamic split that tracks actual contributions over time until a triggering event such as a financing.

Vesting schedule

Four years with a one-year cliff, which the skill describes as the prevailing venture convention; three years with a six-month cliff; a backloaded schedule that vests 10%, 20%, 30% and 40% over four years; or immediate vesting with no schedule.

Vesting acceleration

No acceleration; double-trigger, where unvested shares vest only if the company is acquired and the founder is terminated or demoted within twelve months; single-trigger, where everything vests on any acquisition; or partial, with half the unvested shares vesting on the acquisition and the other half on termination within twelve months.

Time commitment

Full time from day one with no other employment; a transition period of three to six months during which founders may keep other commitments; or part time with agreed minimum hours and non-competing outside work.

Intellectual property assignment

Full assignment of all IP related to the business; assignment of new IP while each founder keeps prior IP and licenses to the company what it uses; or a narrow assignment limited to work done on company time or with company resources.

Decision making and voting

Unanimous consent for major decisions; a supermajority of 66% or more of founder equity; a simple majority by equity; or broad authority for the chief executive, with only listed reserved matters going to a founder vote.

Founder roles and titles

Defined roles with specific titles from the start, equal co-founders with the chief executive to be chosen later, or ownership of functional areas such as product, engineering and sales.

Departure terms

The standard approach (vested shares kept, unvested forfeited); good leaver and bad leaver terms, where a bad leaver also faces a repurchase of vested shares at the lower of cost or fair market value; or a company right, but not an obligation, to buy back all of a departing founder's shares at fair market value.

Non-compete

No restriction; a restriction during active involvement only; or a post-departure restriction for a fixed period, limited to what is reasonably necessary and with compensation where the law requires it.

Dispute resolution

Mediation first and then binding arbitration, binding arbitration only, court litigation, or a non-binding review by an advisory board first, followed by the binding step the founders choose.

What the two sides usually negotiate

The skill treats the equity split, the time commitment, founder roles and the dispute route as neutral choices: every option there carries equal scores. The points of tension are elsewhere. Founder A is favoured by options that protect the company and the founders who stay; Founder B by options that give an individual founder more security or freedom.

• Vesting: a backloaded schedule favours Founder A and the three-year schedule favours Founder B. The four-year schedule with a one-year cliff is balanced; immediate vesting is also scored as neutral, although the skill advises against it.
• Acceleration: no acceleration favours Founder A; single-trigger and, to a lesser degree, partial acceleration favour Founder B. Double-trigger is the balanced position.
• IP: full assignment favours Founder A and a narrow assignment favours Founder B. Assigning new IP while licensing prior IP is the balanced position.
• Decision making: chief executive authority, simple majority and, to a lesser degree, a supermajority favour Founder A. Unanimity is the balanced option.
• Departure: good leaver and bad leaver terms, and to a lesser degree the company buyback, favour Founder A. The standard approach is the balanced position.
• Non-compete: a post-departure restriction and, to a lesser degree, an in-term restriction favour Founder A. No non-compete is the balanced position.

When the founders choose different options, Dealroom proposes these balanced positions, weighted by how firmly each side holds its view.

Jurisdictions and languages Dealroom supports for it

Dealroom drafts this agreement under the law of California, England and Wales or Spain, in English or Spanish. Each jurisdiction adds its own provisions.

• California: California law and the courts of San Francisco County; a statement that the agreement contains no post-departure restraint and that the company will not present or enforce one; and each founder's acknowledgment of sole responsibility for any section 83(b) election within 30 days. The post-departure non-compete option is blocked.
• England and Wales: English law and the exclusive jurisdiction of the English courts, restrictive covenants limited to what is reasonable and necessary and severable if not, and no exclusion of liability for fraud.
• Spain: Spanish law, in particular the Ley de Sociedades de Capital and the Civil Code; the courts of the company's registered office; the Workers' Statute limits on non-competes for founders who are also employees; good faith in interpretation; and a statement that the agreement binds the founders but not the company, with vesting and repurchases carried out through cross purchase options between founders or the articles. The company buyback option is blocked, because a Spanish limited company can acquire its own shares only in narrow cases.

For a Spanish limited company with a minority investor, see also the Spanish shareholders' agreement.

Common mistakes

• Splitting equally by default. An equal split can cause problems if contributions later become unequal; the split should reflect expected contributions.
• Skipping vesting. Without it there is no protection if a co-founder leaves early, and investors will likely require it.
• Missing the 83(b) deadline. In the United States the 30 days run from the share purchase, not from signing the founders agreement.
• Presenting a post-departure non-compete in California. It is void and creates exposure.
• Copying US buyback terms into a Spanish company. Use cross purchase options between founders instead.
• Overlooking dual status in Spain. A founder who is also an employee needs compensation and a capped duration for any post-departure non-compete.
• Leaving IP unassigned. Without a clear assignment, a founder could later claim code or inventions the company relies on.