What is Founders’ Agreement Negotiation?
A founders’ agreement is a legal contract for company co-founders. It basically explains how they own and manage the business, as well as how they will be compensated.
Once you’ve drafted a founders’ agreement, you’ll want to consider negotiating its terms so that you minimize your risk of disputes and settle on mutually-favorable terms to guide your company’s growth.
Read the rest of this article to explore key terms typically found in a founders’ agreement, how to negotiate this important document, and how a qualified lawyer can assist you through the process.
What Key Terms are in a Founders’ Agreement?
The following core components are usually present in a founders’ agreement, which can be discussed and negotiated between parties.
- Roles. All founders’ roles and responsibilities need to be specified. This should also include their voting rights.
- Purpose. The founders’ agreement should state the purpose of the business.
- Equity ownership. It must be clear how much ownership, in percentages, the founders will have.
- Vesting. This section explains when founders earn equity. It usually includes a cliff period to protect the company if a founder leaves the company.
- Commitments. There must be clarity regarding financial and time commitments that founders will make, especially since this can vary between them.
- Code of conduct. This aligns the founders regarding their strategies and values, so that they’re on the same page. Establishing a code of conduct can help you to minimize disputes.
- Exit. If one founder wants to leave the company, it must be clear what processes need to be followed.
- Restrictions. To protect the business, there might be restrictions founders need to follow, such as not starting their own businesses that can conflict with the primary company.
- Dispute resolution. There must be information for how disputes can be resolved, such as via mediation or arbitration.
What are Tips for Founders’ Agreement Negotiation?
When negotiating terms in a founders’ agreement, there are some things to consider.
Consider the Equity Split
How equity is shared between founders must be clear. It can be beneficial to tie shares to actual value that’s been contributed, such as cash invested, to prevent disputes.
Explain Roles and Duties
It’s important to discuss and negotiate every founder’s roles under the agreement, laying down specifics regarding job tasks, daily activities, and more. This puts everyone on the same page.
Discuss Good vs. Bad Leavers
There can be misunderstandings regarding how a good or bad leaver is defined. Negotiate rules between founders so that it’s clear what will happen to a founder’s shares if they leave the company or get fired.
Share Perspectives
When discussing terms in a founders’ agreement, it’s essential for all parties to openly share their needs. This will help you to identify middle ground. It’s also important to understand that founders have different financial situations and lifestyles. Discuss their differences to avoid unbalanced terms and prevent disputes.
Focus on Flexibility
It’s important to try to prioritize flexibility during negotiations so that you can navigate the company’s changes and growth. If terms are too structured and rigid, they can make expansion challenging, such as when it comes to hiring executives, changing founders’ roles, and adapting the business.
Get a Legal Review
Before negotiating terms with other founders, it’s in all of your best interests to request a legal review from a qualified lawyer. They will uncover hidden risks and help you to consider aspects of the founders’ agreement you might not realize could result in disputes, which strengthens your negotiation tactics.
ContractsCounsel is one of the largest online legal marketplaces where you can connect with a curated network of vetted lawyers who are reputable and experienced. To request that a lawyer on the platform reviews your founders’ agreement to help you better negotiate its terms, here are the easy steps to follow:
- Go to the ContractsCounsel marketplace, where you can post your project for free. Include a few details to match with the best lawyers, such as what terms in your founders’ agreement you’re particularly concerned about.
- Receive lawyer bids. You’ll receive multiple bids from lawyers directly on the platform who are ready to assist you.
- Once you receive the lawyer bids, you can review the lawyers' profiles. There’s lots of info on the platform to help you choose a suitable lawyer, such as their location, client ratings, years of experience, and field of expertise.
- Connect with a lawyer and hire them to review your founders’ agreement for a flat fee.
Do You Need a Lawyer for Founders’ Agreement Negotiation?
It’s worth involving a lawyer to help you negotiate a founders’ agreement because it has essential terms governing your relationship. Issues such as liabilities and ownership can be complex. Legal guidance ensures that all agreement terms are mutually favorable and legally compliant to protect all founders.
A lawyer helps you through the negotiation process by:
- Defining all roles, duties, and decision-making authority prior to entering into negotiations.
- Identifying future concerns and conflicts so that they can include appropriate provisions in the founders’ agreement.
- Providing legal advice throughout negotiations so that the agreement is fair and enforceable.
- Balancing competing founder interests while protecting the company’s long-term stability and success.
- Negotiating and drafting the agreement to reduce ambiguity.
Where to Find a Lawyer to Negotiate a Founders Agreement
If you need to hire a lawyer for help with negotiating a founders’ agreement, this doesn’t have to be a time-consuming process. By making use of an online legal platform, you can quickly connect with experienced and skilled lawyers who can assist you with negotiating terms in a founders’ agreement.
On ContractsCounsel, you can search for the most suitable lawyer who meets your legal requirements by reviewing the information provided on the platform. This includes the lawyers’ location, client ratings for previous projects, credentials, and years of experience.