A Co-founders Agreement sets the roles and duties of the founders, who have started a Company. Starting a business requires a lot of investment, commitment, and time from the co-founders, the co-founders may know each other personally or it may also be a professional relationship. In either case, the co-founders must be precautious enough to be able to estimate the risks which may evolve further.
You must, along with your co-founder enter into a co-founder’s agreement at the beginning of the business, this includes even before your company gets incorporated. This agreement outlines the understanding, which shall be carried on by the co-founders for the smooth functioning of the Company.
The Co-Founder’s Agreement becomes legally enforceable by drafting and printing the content on E-stamp paper. This must be signed by the concerned parties, with an appropriate stamp duty which shall be applicable in the state where you reside.
It is advisable to consult contract lawyer for further proper proceedings to avoid mistakes.
IMPORTANT FACTORS TO BE LOOKED INTO BY THE CO-FOUNDERS
- The responsibilities must be well allocated between the co-founders.
- To be specific about the monetary expenditure. That is, how much will each co-founder contribute.
- Deciding on the profit which shall be received by the company. And, in what ratio must that be divided amongst the co-founders.
- Listing out the confidential obligations which must not be disclosed by the co-founders.
- Conditions on when a co-founder can be fired by a majority of the votes. It must be clear between the co-founders that they cannot simply be fired from the company unless and until there are valid reasons which seem objectionable to the Company.
- The Co-founders must also give enough importance to the employment laws as they must abide by the latest rules which are put up by the State for the employee.
- The co-founders must specify the method which must be used, to resolve any dispute that may arise in the future. This involves any serious breakdown of a relationship between the co-founders which cannot be settled through mutual discussion. The use of an arbitration clause will mitigate the risks that may arise shortly.
- To avoid the co-founders from starting the same business as already engaged in, there must be a clause in the agreement which avoids the co-founders to carry on the same idea as they have already executed. There should be clarity on the business, which the co-founders cannot engage.
Before entering into a co-founder’s Agreement, the co-founders must decide:
- The shares to be allotted between each co-founder.
- The capital investment made by the each founder.
- The voting rights assigned to each founder.
- The profit division/salary allotted to each founder.
How A Contract Lawyer Will Assist during the Drafting Of Co-founders Agreement
ESSENTIAL PROVISIONS A CORPORATE LAWYER / CONTRACT LAWYER LOOKS INTO:
- The definition of Business.
- Co-founder’s name and address.
- The Agreement’s duration and conditions for it to be valid or invalid.
- Goal of the Company.
- Roles and Responsibilities of each co-founder.
- Details about the investment made by the founders.
- Profit to be taken by the founders.
- Details about the termination of the co-founders.
- Dissolution of the company and the conditions.
- Details about Dispute Resolution.
- Confidentiality of material data between the co-founders.
- Other miscellaneous clauses which are necessary will be added by the appropriate Advocate in the agreement, after having a discussion which the clients and listing out the expectations of each founder.
How to Draft a Co-founder’s Agreement?
Take contract lawyer assistance for drafting and processing agreements. We do not suggest you to draft a co-founder’s agreement by oneself or by the use of an online template. Instead, it is better to approach a Contract lawyer / Corporate lawyer, contract lawyer comprises drafting, revising legal contracts and documents, our contract lawyer will help you to mitigate risks which may pose as a consequence between you and the other co-founders. We look into all aspects before drafting a co-founder’s agreement.
If You are Looking to take assistance of Contract Lawyer / Corporate Lawyer for drafting Co-Founders Agreement, Then book appointment as per your convenience time slot in Bangalore and also In Hyderabad