How much does a founders' agreement cost? A founders' agreement is a legally binding contract that governs the roles and relationships between a company's co-founders.
Founders' agreements are executed before a startup is incorporated and are a vital document for new business in which several founders have agreed to work together to develop a business.
A founders' agreement will set the tone for how the business will operate in the future, so it is essential that this contract is drafted correctly. Before hiring an attorney to draft this agreement, most people want to know how much a founders' agreement will cost. Let's explore this question and go over some general information about founders' agreements.
How Much Does a Founders' Agreement Cost?
The cost of a founders' agreement will vary based on several factors. The company's location usually plays a role in lawyer fees because the cost of legal services varies from state to state.
The complexity of the agreement will also affect the cost because a lawyer will spend more time drafting a more complex document. If the founders' agreement needs to include language about intellectual property, the client may need to seek the services of a lawyer who specializes in intellectual property, which could be more expensive than a typical contract or startup lawyer.
Founders' agreements can be complex documents that include terms and conditions relating to ownership structure, capital contribution, voting rights, and equity compensation. It is important to find a lawyer who has specific knowledge in drafting and reviewing these contracts.
Based on ContractsCounsel's marketplace data, the average cost of a founders' agreement is $762.50 .
What's Typically Included in a Founders Agreement
Founders' agreements can easily be customized to fit the needs of the co-founders of any startup company, so each agreement will include slightly different terms.
Even though terms vary, a comprehensive founders' agreement will address the following:
- Roles and responsibilities of the co-founders. One of the most important roles of the founders' agreement is to establish the responsibilities of all the founding members. This can include defining roles like CEO, COO, and CFO.
- The proportion of ownership. The founders' agreement should lay out the proportion of equity of each co-founder. The proportion of equity can be determined by monetary investments, experience and knowledge in the field, and existing intellectual property.
- Vesting schedule. The vesting schedule regulates when each co-founder receives their shares in the company. Vesting schedules incentivize founding members to remain in the business longer. Instead of a member receiving the shares immediately, they only become entitled to the shares after a predetermined amount of time.
Other terms that are commonly found in founders' agreement include:
- Ownership structure
- Voting rights
- Capital contribution requirements
- Confidentiality
- Contractual communication
- Dispute resolution
- Choice of law clause
- Representations and warranties
- Non-compete clause
- Promissory notes
The co-founders of a startup can choose to have their founders' agreement be as detailed or complex as they desire. The more terms and conditions agreed upon and detailed in the agreement, the less the risk for future disputes.
Do You Need a Founders Agreement After Incorporation?
No. You do not need a founders' agreement after incorporation because a shareholders agreement will replace the need for a founders' agreement.
Although founders' agreements and shareholder agreements are similar, when a business incorporates, they are required by law to have a shareholder agreement. In addition to the terms and conditions addressed by the founders' agreement, shareholder agreements will add guidelines for operating the business.
If a company has a founders' agreement, they can have both a shareholder agreement and a founders' agreement. If the company never had a founders' agreement, there is no need to create one after incorporating.
Examples of Founders Agreement Projects
Founders Agreement Drafting
Many companies choose to hire a startup lawyer to draft an effective founders' agreement. Agreements will vary depending on the company and the industry, but a knowledgeable attorney will know the terms and conditions that must be included to make the agreement effective and enforceable.
An attorney who is hired to draft a founders' agreement will often meet and consult with the co-founders to ensure the agreement meets the company's needs and protects each member.
Founders Agreement Review
New startups with tight finances may find that hiring a lawyer to draft the founders' agreement is too expensive. In this case, the co-founders can prepare their own agreement and hire a lawyer to simply review the document.
Document review takes less time and should be a less expensive option. This will allow the company to save money but also know that their founders' agreement is legally binding and includes all necessary terms.
Founders Agreement Disputes
If a founders' agreement is drafted correctly, it should help avoid disputes because it lays out the roles and responsibilities of each member and should also contain a clause about dispute resolution.
Even with the best-written agreements, disputes between co-founders can still arise. Co-founders should reach out to an attorney as soon as possible after a conflict begins. Dispute resolution is more effective if started early.
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Drafting a Founders Agreement Cost
Drafting a founders' agreement will require the time and expertise of a licensed attorney, so companies should expect to incur legal fees.
According to ContractsCounsel's marketplace data, the average founders' agreement drafting costs are $875.00 across all states.
Reviewing a Founders Agreement Cost
Reviewing a founders' agreement should cost less than a drafting project, but a lawyer will still need to be compensated for their time and specialized knowledge.
ContractsCounsel's marketplace data shows the average founders' agreement review costs to be $450.00 across all states.
How Do Lawyers Charge for a Founders Agreement?
When a company hires a startup lawyer to draft a founders' agreement, review a preexisting contract, or settle a dispute, the lawyer can structure their fee agreement as an hourly rate structure or a flat fee structure.
Hourly Rates for a Founders Agreement
Hourly rate fee structures tend to be the more popular fee structure for most lawyers because it is the best way for lawyers to be compensated for their time.
In an hourly rate structure, an attorney bills the client at a set rate for the number of hours a project took to complete. This way, a lawyer is sure that they will be paid for all time spent on a client's project or case.
The marketplace data for ContractsCounsel shows the average hourly rate for a startup lawyer ranges from $225 - $300 per hour.
Flat Fee Rates for a Founders Agreement
Flat fee rate structures are growing in popularity, especially for legal document drafting projects. An experienced lawyer can determine how long a project should take after consulting with the client. The lawyer can quote the client a flat rate for the project that ensures the lawyer will be fairly compensated for their work.
Clients tend to prefer flat-rate fees because they know exactly what they are paying and won't be surprised by a high hourly rate bill.
ContractsCounsel's marketplace data shows the average flat fee rate for founders' agreement costs to be $762.50 .
Get Help with a Founders Agreement
Do you need help with a founders' agreement project? If so, post a project in ContractsCounsel's marketplace to receive flat fee bids from startup lawyers to handle your project. All lawyers on the ContractsCounsel's platform are vetted by our team to make sure you are provided with top-tier service.
