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A founder agreement is a contract between the co-founders of a company. It covers aspects such as the ownership, duties, roles, responsibilities, and the initial investment of each founder.
The essence of the founders’ agreement is that it assigns a specific role to the founders of an enterprise and thus preventing any ambiguity amongst them within the organization in the future.
This helps the entrepreneurial organization to achieve their goals and objectives in a better and amicable way without any conflicts amongst the founders, further facilitating better relationships between them.
Before drafting a founders’ agreement, it is essential for the founders to discuss openly the aspects of the agreement. Generally, the agreement is made during the incorporation of the organization.
Some of the essential elements of a founders’ agreement are as follows:
It is a contract governing business relationships of company’s founders who enter into such a contract to regulate uncovered matters in company’s agreement. It sets out the responsibilities, rights, obligations and liabilities of every founder.
It is essential to enter into such agreements to solve issues in case any difficulty arises. In absence of an agreement to this effect, one partner may walk away and use
Knowledge of the business and know-how for competition.
One may also get into a situation where one partner takes a back step and just reap the benefits of hard labour of the other partner.
None of these positions are favourable for the business and are undesirable. Thus if one does not engage in future planning, he/she might end up jeopardizing the business even before it starts.
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It is an agreement that gives an outline of various roles and responsibilities of the founding members of a Company, the amount of equity vested in it and the ownership of intellectual Property formed by them plus their roles and responsibilities. It even takes in consideration about their departure or Death.
Following are the benefits of having it :-
1. It Clears the Air on may matters that may be undiscussed between the co-founders
2. It gives an opportunity to early team members to discuss the important matters and clearing their doubts and having a better relationship.
3. Further on it defines the roles of all the co-founders and early team members.
4. It leads to a good understanding amongst the founding members.
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