Founders Agreements: What to Include and How to Get It Right

Why Founders Agreements Matter from Day One

When a startup begins, enthusiasm can make it easy to ignore tough conversations. But early optimism can quickly give way to misunderstandings over roles, ownership, and future direction. A founders agreement helps you avoid waking up to surprises that could threaten everything you’ve built together.

From the very beginning, clarity is currency. A founders agreement cuts through assumptions—no one’s memory or handshake stands up to a printed agreement when stress hits. By spelling things out, you keep relationships strong and remove hidden pitfalls before they trip you up.

Even if your team consists of close friends, a clear agreement gives your venture a foundation. It becomes your blueprint for resolving disagreements, splitting the pie, and navigating exits. Investors and new hires will expect to see these basics settled when they climb aboard. Skipping this step leaves gaps, and gaps become headaches as your business grows more complex.

Getting this right on day one means you’ll spend less time unraveling knots in the future, and more time building something worth celebrating. So, what actually goes into a solid agreement? Let’s break down the essentials every team needs to cover before moving forward.

What a Founders Agreement Covers

A founders agreement acts like a map for your startup’s journey: it sets out who’s at the wheel, what each person brings to the table, how big the stakes are, and what happens when things go sideways (or incredibly well). Getting this in writing clears up big questions before they ever turn into misunderstandings.

Founder Names and Company Details

This upfront section identifies each founder, the business’s legal name, and any essential startup identifiers. Everyone listed should match the official government records and cap table to avoid confusion down the line.

Ownership Split and Vesting Terms

The real heart of the agreement: who owns what percentage, and how (or when) those shares become fully theirs. Vesting keeps founders committed, typically rewarding shares over a few years to discourage someone from bailing early with equity in hand.

Roles, Time Commitments, and Expectations

This part breaks down who’s in charge of what—from product development to sales. It’s important to go beyond titles: spell out weekly hours expected, what “full-time” means, and any outside commitments allowed.

Decision-Making and Voting Rights

Lay down how major decisions get made. Do all founders get an equal vote? Is a simple majority enough? Some pick weighted voting, where bigger shareholders have more say. Whatever method, put it in plain numbers to prevent gridlock.

Capital Contributions and Expenses

Who’s putting in early cash, IP, gear, or sweat equity? Set out what’s been contributed, what each person might need to chip in next, and how future expenses get approved—or reimbursed.

Compensation, Salary, and Benefits

Set early-stage rules for how—and when—founders get paid. Are salaries deferred? What about health insurance, equity bonuses, or expense allowances? If you’re starting lean, include how you’ll revisit compensation as funding arrives.

Handling Intellectual Property

Stakes can get high over who actually owns the code, product designs, or patents. A solid agreement confirms that anything created for the startup belongs solely to the company, not individual founders.

Confidentiality and Non-Compete

Protect your secret sauce. Founders agree not to spill company secrets or immediately join a competitor—or launch a rival—if they leave. Lay out reasonable timelines and geographic restrictions to avoid legal headaches.

Resolved Disputes: Step-by-Step

If founders lock horns, who breaks the tie? Create a path for resolving disputes, such as mediation or outside arbitration. Clarity here keeps disagreements from shutting down progress.

Founder Exits, Removals, and What Happens Next

Spell out what happens if a founder quits, is removed, or simply disappears. It’s not about expecting disaster—it’s about planning for real life. Decide if the company can buy back their shares, and at what price.

Dissolution Scenarios and What They Mean

Sometimes, shutting down is the only choice. Include steps for dividing up assets, handling debts, and officially closing shop so there are no loose ends or surprises.

Once you know what to include, building an agreement that stands the test of time comes down to asking the right questions—as a team, not just as individuals. Up next, we’ll cover how to actually craft this pact so it fits your startup’s DNA and ambitions.

How to Build an Agreement That Lasts

Key Questions to Ask Together

Before anyone drafts a single line, it helps to set aside assumptions and have a real conversation. What do you each want from this company? Where do you see yourself in two years—or ten? What happens if someone needs to move on early? Asking these questions upfront, even if some answers surprise you, will uncover real expectations and surface red flags before they become major problems.

Getting Advice Without Stalling Progress

Talk to founders in your network who’ve been through this before, or seek early input from a startup lawyer, but keep moving forward. Over-analysis and endless debate can stop your momentum right when your business needs it most. Gather advice, but use it to inform your agreement—not to avoid tough choices.

When to Use a Template or Lawyer

Templates are a helpful starting point, especially if you’re short on funds or time. But they’re not one-size-fits-all. Use a solid template to cover the basics, then customize it to your team’s specific situation. If the stakes or assets are high, or if you’re unclear about vesting, exits, or IP rules, invest in a brief review with an experienced startup attorney. That 60-minute consult can save countless hours and dollars—and intense stress—in the future.

Review and Sign: Locking it In

Read every clause together. Check that term definitions are clear, vesting schedules match your conversations, and that everybody’s commitments are spelled out. Make sure nothing is left to interpretation. Once you’re satisfied, sign it. It doesn’t have to be perfect—just clear, fair, and honest. Most importantly, keep a signed digital copy in a safe place for all to access.

While the process of crafting a durable agreement sets a strong foundation, it’s easy to overlook a few core details—next, let’s break down the most critical points you don’t want to miss before calling it complete.

Quick Checklist: Don’t Forget These Points

Every founder’s legal name and contact details are spelled out—nicknames don’t count.

The percentage split for ownership totals exactly 100%; make sure the math works.

Vesting schedules include start dates and specify what happens if someone leaves early.

Roles and responsibilities are written down, not just assumed.

Plans for big decisions: who votes, what needs consensus, and who breaks a tie.

Who’s bringing in money, skills, or assets at the start—and how future investments are handled.

Salary, equity, bonuses, and what happens if cash gets tight.

All intellectual property, past and future, goes to the company (not just whoever made it).

Clear rules on confidentiality, and bans on building a rival product on the side.

Step-by-step process if founders can’t agree—and who mediates if push comes to shove.

Ground rules for what happens if a founder wants out, can’t contribute, or needs to be removed.

Spelled out plan for shutting down: who gets what, who owes what, and how the final decisions are made.

Getting these details right will save you from confusion (and awkward conversations) later. Next up, let’s see how this type of agreement stands apart from other legal docs that you might have heard about—but may not actually need.

Founder Agreements vs. Bylaws: Key Differences

It’s easy to confuse a founders agreement with corporate bylaws, but they play very different roles. A founders agreement belongs to the origin story. It’s a handshake—in writing—between the people starting the business. Bylaws, on the other hand, are house rules for the company itself, not just its founders.

The founders agreement answers: Who owns what? Who does what? What happens if someone leaves? This is a document for the founding team to hash out expectations, incentives, and exits before money, investors, or stress complicate things. It’s personal and practical, setting a foundation you can actually live with as co-founders.

Bylaws step in later. They’re required when you incorporate, and are usually much more formal. These spell out how the company’s official decisions are made, how directors are elected, what counts as a quorum, and how shareholder meetings work. They’ll stick with the company long after the founding team changes, making sure the business can function no matter who is in the room.

In short, the founders agreement is about people; bylaws are about the company. Knowing this distinction helps you avoid trusting an empty promise, or filling your early meetings with procedural red tape that no one cares about—yet.

Before you try drafting your own or picking a template, it helps to know exactly where to turn for helpful resources. Let’s explore some options that can speed up your agreement process—without skipping any critical steps.

Helpful Templates and Further Reading

If you’re about to put pen to paper, you don’t have to start from scratch. Several well-crafted templates exist to guide founders through those tricky early decisions. These resources lay out essential clauses, plain talk on ownership splits, vesting, and much more. Here are a few you can explore:

For deeper insight into why these agreements matter, and pitfalls to dodge, consider reading:

Skim a few templates, read some real-world examples, and you’ll have a clearer sense of what you want—and what to avoid. And if you’re wondering what happens as teams grow, let’s dig into some of the most common questions founders have next.

Frequently Asked Questions

Should new founders sign the same agreement?

Yes, when a new founder joins the team, it’s smart to create an updated founders agreement—and have everyone sign it. That way, every founder is accountable to the same terms, so there’s no argument later about ownership, vesting, or responsibilities. Think of it as resetting the rules so everyone plays on a level field.

Can you update a signed founders agreement?

Absolutely, but only if all parties agree to the changes in writing. Startups evolve: roles shift, investors come in, or someone may leave. Whenever major updates happen, get everyone’s signature again. Never just tack on changes informally or assume a handshake will do.

How long should a founders agreement last?

There’s no hard expiry date. A founders agreement should cover your startup as long as the founding relationship exists. If the business structure changes or all founders leave, it’s time to revisit—or retire—the agreement. Otherwise, it keeps running quietly in the background, ready when you need it.

With these basics in mind, it’s worth seeing how founders agreements truly compare to other standard company documents. This next section will clear up where they overlap—and where they couldn’t be more different.