What is Cofounder Agreement Drafting?
A cofounder agreement is a legally-binding contract between business partners. It outlines important terms for their working relationship, such as the founders’ roles, equity shares, and other rules.
If you need to draft a cofounder agreement, here are the steps to follow. We’ll explore key terms to include in it, how to draft it professionally, and when to consult a qualified lawyer for assistance with the contract drafting process.
What are Core Components in a Cofounder Agreement?
A cofounder agreement should contain the following key terms to prevent disputes:
- Equity distribution. Explain the share percentage each founder receives.
- Vesting schedule. Confirm the timeline for how and when cofounders earn their shares or equity.
- Roles. Define daily duties and decision-making authority.
- Intellectual property (IP). Make sure you establish who owns IP, such as code and designs.
- Compensation and expenses. Outline salaries, loans, and any expenses that apply.
- Exit. Specify how the agreement can be terminated, such as by explaining voluntary exits and involuntary removal of founders.
- Dispute resolution. Should parties disagree on matters they can’t resolve, specify a dispute-resolution method, such as mediation or arbitration.
What are Tips for Drafting a Cofounder Agreement?
Drafting a cofounder agreement requires verifying all rules and terms to prevent disputes in future. Here are some tips to consider.
Explain Equity Division
Make sure that your cofounder agreement specifies how equity is split. How it’s calculated can be based on cofounders’ contributions, including time commitments and capital invested.
Assign IP
A crucial element of your agreement is to assign IP so you can legally transfer previous, current, and future code or designs. This serves to protect you against future ownership disputes.
Define Roles
Make sure you explicitly state which party will be responsible for specific activities, such as daily operations, and how decisions are made, such as if they require majority consent.
Include Deadlock Provisions
On the topic of making decisions, cofounders should have clarity about how deadlock situations can be resolved. For example, they might agree to consult an objective third party if they can’t come to a decision.
Clarify Founder Exits
You want to ensure there’s clarity about what will happen if a cofounder leaves or is fired from the company. For example, this could include stating company buyback rights for the person’s shares.
Protect Company Assets
It’s important to protect the company, so add provisions related to IP ownership and confidentiality in the agreement. This ensures that even if cofounders leave, the company will be secure.
Should You Hire a Lawyer for Cofounder Agreement Drafting?
A cofounder agreement must be clear about the working arrangement between partners. If there’s anything vague, it can put you at legal or financial risk. Hiring a lawyer for help with the drafting process is advisable so that you cover all your bases.
A lawyer can help you during the drafting of your cofounder agreement by:
- Clarifying founder roles. This includes detailing their duties and responsibilities, as well as expected time and money contributions.
- Establishing ownership percentages. A lawyer helps you to determine founders’ equity and when those interests are allocated.
- Considering capital contributions. They’ll provide detailed information about what capital has to be contributed, such as if this involves cash or assets.
- Ensuring clear vesting provisions. They’ll explain if ownership interests are earned over time or triggered by specific milestones. They’ll also clarify what happens if a founder leaves the company before vesting is complete.
- Setting decision-making rules. They’ll establish clear decision-making rules and explain which ones require majority approval.
- Protecting your interests. This includes setting IP provisions to avoid ownership disputes.
- Addressing transfers. If it happens that ownership interests are to be transferred, a lawyer will guide you on how the process will work. This includes establishing clear buyback arrangements.
- Checking for compliance. Since they have legal knowledge, a lawyer will ensure that the agreement is aligned with all the company’s documents and applicable laws that apply.
- Reviewing your agreement. If you’ve already drafted a cofounder agreement, you can hire a lawyer to conduct a thorough review of it. This will put your mind at ease that all its terms are legally sound, clear, and specific.
Where to Find a Lawyer for Cofounder Agreement Drafting
If you’d like to hire a lawyer for cofounder agreement drafting, you don’t have to search for a lawyer by asking people you know for recommendations or calling traditional law firms. By using an online legal platform, you’ll easily connect with lawyers from your device.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of lawyers who have been vetted on the platform.
Here are the easy steps to follow when you need to find a lawyer to draft your cofounder agreement:
- Visit the ContractsCounsel marketplace.
- Select ‘One-time project’ and ‘Create or update contract.’ Or, select ‘Contract review’ if you’d prefer to hire a lawyer to review your agreement.
- Post your project, or request, for free. Include details so you can match with a suitable lawyer, such as information about your cofounders or any concerns you have.
- Wait for bids. After posting your project, you’ll receive multiple bids from lawyers directly on the platform who are ready to assist you.
- Review the lawyer data. The platform provides extensive information about lawyers, such as their location, expertise, credentials, years of experience, and client ratings for previously completed projects on the platform.
- Select a lawyer, based on their bids and the platform research. They’ll draft your cofounder agreement for a flat fee.