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Why do I need a Founders Agreement? I know my Co-Founders

When you kick-off your new venture you should not forget to formalize your relationship with your co-founders.  It is important to make sure that you and your partners understands each other’s expectations, as “good fences make good neighbors”.  It is also important to deal with some important legal aspects of the venture, that must be dealt with as early as possible.

Setting Expectations.  Generally, each founder brings to the new venture a set of skills (technical, business, managerial and so on), expectations, a specific financial/personal situation and an ego.  The Founders Agreement creates the arena in which the co-founders must discuss these issues –

  • Who gets what percentage of the startup?
  • What will be the role to be performed by each of the founders (CEO, CTO, VP BizDev, etc.) so as to ensure success of the startup (ignoring personal aspirations and ego considerations is probably the best recipe for success);
  • What is the time contribution expected of each of the Founders until salaries can be paid? What to do if despite the commitment a founder cannot perform the way he promised – is reverse-vesting the right answer?
  • What if the founders discover that they cannot work as a teams – is the right solution to buy a founder out? Or maybe give all the right to continue separately?
  • How will the startup be financed in its early stages?

 

Legal Aspects.  The main legal aspects that should find their way into your Founders Agreement are:

  • Provisions relating to the future establishment of a limited liability company that will operate the venture and various matters such as board composition, convening of various meetings, preemptive rights, first refusal rights and so on;
  • Assignment of all intellectual property and know-how to the new company once it is incorporated so as to ensure that none of the founders has a personal claim to the intellectual property  and know-how of the venture.  Another benefit of a timely assignment is that future investors will be happy to find out that your venture is being run in an orderly manner and an important milestone has been taken care of early in the life of your venture.

 

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The article was written by Amir M. Gruber, Attorneys @ Law in cooperation with Gissin & Co., Advocates

Tel: +972-72-2223111, Visit us at: www.amglaw.co.il

 

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