What is Founder’s agreement?

A founder’s agreement is a legal document that outlines the roles, responsibilities, and rights of the founding members of a startup or company. It serves as a foundational agreement between co-founders, ensuring that everyone involved in the business understands their contributions, expectations, and obligations. A founder’s agreement is particularly important in the early stages of a company’s development, as it sets clear guidelines for decision-making, equity distribution, and conflict resolution.

Key Features of a Founder’s Agreement

  1. Equity and Ownership
    • One of the primary components of a founder’s agreement is the distribution of ownership and equity in the company. This section clarifies how ownership is shared among the founders and outlines the process for issuing additional equity if new investors or partners join later.
    • It also addresses how equity may be affected if a founder leaves the company before a certain period, commonly referred to as vesting.
  2. Roles and Responsibilities
    • The agreement specifies the role and responsibilities of each founder in the company. This includes day-to-day operational duties, decision-making authority, and any specific areas of expertise each founder brings to the table.
    • Clear definitions of roles help avoid misunderstandings and ensure that all founders know their areas of responsibility.
  3. Decision-Making and Voting
    • A founder’s agreement often includes a framework for decision-making, outlining how major business decisions will be made (e.g., unanimously, by majority vote, etc.).
    • It also specifies the voting rights of each founder, particularly if some have a larger ownership stake or more operational control.
  4. Intellectual Property (IP) and Confidentiality
    • The agreement typically addresses the ownership of intellectual property (e.g., patents, trademarks, and business ideas) that is developed during the course of the company’s operations.
    • Founders agree to maintain confidentiality and protect sensitive business information that is shared within the company.
  5. Conflict Resolution
    • A founder’s agreement establishes procedures for resolving disputes between co-founders. This may include mediation or arbitration clauses to avoid litigation and ensure that disagreements are resolved amicably and efficiently.
  6. Exit and Termination Conditions
    • The agreement sets out the conditions under which a founder may exit the company. It addresses what happens to their equity, the process for buying them out, and any conditions that must be met in the event of a founder’s departure.
    • It also outlines what happens if the company is sold, goes public, or is dissolved.
  7. Vesting and Buyout Clauses
    • Vesting ensures that founders earn their equity over time, meaning that if they leave the company early, they forfeit a portion of their shares. This protects the company from a situation where a founder leaves soon after receiving significant equity.
    • The buyout clause defines how a departing founder’s shares will be bought out by the remaining founders or the company, often at a pre-agreed price or method.

Importance of a Founder’s Agreement

  • Clarifies Expectations: A founder’s agreement sets clear expectations for all co-founders, ensuring that everyone is on the same page from the beginning regarding their roles, responsibilities, and contributions.
  • Reduces Conflict: By having a written agreement in place, founders can reduce the likelihood of disputes and misunderstandings down the line. It provides a clear framework for handling disagreements and prevents unnecessary tension.
  • Protects Intellectual Property: The agreement protects the company’s intellectual property and ensures that any innovations or proprietary information belong to the company, not individual founders.
  • Attracts Investors: Investors are more likely to invest in a startup that has a solid founder’s agreement in place, as it shows that the founders are committed to the company’s success and have a clear, organized structure for governance.

A founder’s agreement is a critical document for any startup in Switzerland or internationally. It ensures that the founding team operates in harmony, protects both individual and company interests, and lays the groundwork for long-term success. It is highly recommended that co-founders seek legal advice when drafting a founder’s agreement to ensure that all important aspects are covered and the agreement is legally enforceable.