Sample founders’ agreements are available online for download by anyone. Though there are numerous accessible founders’ agreements, don’t rely on a document you downloaded from the web when establishing your new venture.
Each startup has unique characteristics only relevant to it. In addition, each startup has its own manner of operation, and founders in different stages of their lives. Thus, there are different issues to include and emphasize in each founders’ agreement, in accordance with the various needs of the founders and the plan for the venture’s continuation. For a venture to succeed, the founders’ agreement must reflect all of these aspects.
Sample Founders’ Agreement?
The internet is full of sample founders’ agreements. When googling the phrase “sample founders’ agreement,” about 5.7 million hits come up. Most of the results are irrelevant, but it certainly appears the internet has a plethora of materials on the topic.
The Founders’ Agreement Must Include the Venture’s Specific Characteristics
A sample founders’ agreement downloaded from the internet, regardless of whether it is off a legal website or a startup accelerator site, will not reflect the particular and personal needs of the startup you founded.
Like any other field, you should always seek personal customization over something generic. This applies to your founders’ agreement as well.
A founders’ agreement is a contract that defines the expectations from each of the founders, what each of them contributes and performs vis-à-vis the startup. This agreement essentially forms the framework for defining the responsibilities and the relationships between each of the founders and between the founders and the company. What percentage should each founder receive? How much time must each contribute? How much money must each invest? What is each founder’s role? Failing to draft a detailed, explicit, and customized agreement for a venture opens the door to conflicts and disputes between the founders, and even potential lawsuits later on. Drafting a founders’ agreement, preferably at an early stage, is critical for a venture’s security and future.
One complex issue most sample founders’ agreements do not cover is the mechanism that provides for what happens when an entrepreneur retires or leaves. This is a critical mechanism, which, unfortunately for most founders, is triggered often over a venture’s life cycle. It is one of the most important mechanisms in a founders’ agreement. A sample founders’ agreement does not reflect the needs of the founders in such a situation. This can cause uncertainty to the point of sinking the venture.
Look at a sample founders’ agreement from the internet. For the most part, the specific terms you, as an entrepreneur, must fulfill between you and your partners in the venture are not included. Even if they are included, they are not accurate enough to protect you down the line.
If you are in the process of founding a new startup, it is recommended you first draft a founders’ agreement personally customized to you and your needs. This is one of the most critical steps in your venture’s life cycle.
Our firm advises startups throughout the company’s life cycle, including on all matters relevant to founders’ agreements. We invite you to contact us should you require assistance in relation to any of the matters outlined above. Feel free to contact us here.