What should a co-founder agreement include?

The most critical part of the agreement is how ownership is divided. Founders often default to equal splits, but this does not always reflect the value brought by each person. You should consider factors like technical expertise, capital contribution, and initial time commitment when deciding percentages.

Vesting is essential to ensure founders stay committed for the long haul. A standard four-year vesting period with a one-year cliff is common in the US and UK. This means if a founder leaves before the one-year mark, they walk away with nothing, protecting the remaining founders from 'dead equity' on the cap table.

• Initial equity percentage for each founder
• Vesting period duration (typically 3-4 years)
• One-year cliff provision
• Acceleration clauses upon acquisition
• Treatment of unvested shares if a founder is terminated
• Buy-back rights for the company

Ambiguity in leadership can paralyze a startup during high-pressure situations. The agreement should define specific titles such as CEO, CTO, or COO, while outlining the primary responsibilities of each role. This avoids overlapping duties and helps the team move faster.

Beyond daily tasks, you must define how major decisions are made. This includes hiring senior staff, raising debt, or pivoting the business model. In India and the EU, certain corporate actions may require specific board approvals, so aligning the founder agreement with local company law is vital.

• Primary job titles and descriptions
• Voting rights for major business decisions
• Tie-breaking mechanisms for deadlocked votes
• Daily operational autonomy limits
• Procedures for removing a founder from their role

Investors will rarely fund a company that does not clearly own its core technology or branding. The agreement must state that all work created by founders for the startup belongs to the company, not the individual creator. This is often handled through an IP assignment clause.

Without this clause, a departing founder could legally claim ownership of the codebase or trademarks, effectively holding the company hostage. Ensure that the assignment covers past, present, and future work related to the business venture.

• Formal assignment of all IP to the entity
• Disclosure of any prior inventions
• Warranties that the IP does not infringe third-party rights
• Prohibition on using company IP for personal projects
• Survival of IP obligations after departure

Founders often leave due to burnout, personal reasons, or disagreements. The agreement should define 'Good Leaver' and 'Bad Leaver' scenarios. A Good Leaver might keep their vested shares, while a Bad Leaver - such as someone fired for fraud - may be forced to sell everything back at a nominal price.

In the US, 'at-will' employment concepts influence these exits, whereas in the UK and India, employment contracts might require longer notice periods. Clearly defining the process for resignation or removal prevents legal surprises later.

• Definition of Good Leaver vs. Bad Leaver
• Notice periods for voluntary resignation
• Valuation methods for share buy-backs
• Rights of first refusal (ROFR) for remaining founders
• Drag-along and tag-along rights for future sales

Founders have access to the company's most sensitive data. A robust confidentiality clause ensures that trade secrets stay protected even if a founder leaves. This should be comprehensive and last indefinitely for truly sensitive information.

Non-compete clauses are common but subject to varying regional laws. For instance, non-competes are largely unenforceable in California, while they are permitted in many other US states and the UK if they are reasonable in scope and duration. In India, post-employment non-competes are generally difficult to enforce.

• Duration of non-compete restrictions
• Geographic scope of non-compete clauses
• Non-solicitation of employees and customers
• Definition of confidential information
• Exclusions for publicly available information