Entrepreneurs and start-up founders are rightly focused on perfecting their product or service and getting the business off the ground. However, agreements between partners and co-founders as to management, contributions, time commitments, and more, are often done with a handshake and without a written legal agreement. This is frequently a costly mistake that can be eliminated or minimized with a well-crafted founders' agreement.
A founders' agreement is a written contract between a company's founders that outlines each founders' rights and responsibilities, the founders' obligations to one another with respect to the company, and the procedure for transferring ownership to third parties. The term "founders' agreement" is used generically to describe such agreements, but may take a different name depending on the type of entity formed (an LLC has an "operating agreement", a corporation has a "shareholders' agreement," and a partnership has a "partnership agreement," among others. If the start-up has begun operations but has not yet been incorporated, the founders can execute a "pre-incorporation agreement.")
A successful founders' agreement will be created early in the life of the start-up and will result from candid conversations between the founders and their attorney, whereby the founders must determine the structure of the founders' relationship between themselves and the company and how future conflicts are to be resolved - before a dispute arises.
A founders' agreement should cover issues that could arise and cause a dispute between the founders. These issues include, but are not limited to:
Day 1, before potentially-costly disputes arise between partners.
Moustakas Nelson LLC offers an array of transactional business services for entrepreneurs and startups, including formation of business entities, preparation and negotiation of founders' agreements, operating agreements, partnership agreements, shareholders agreements, as well as financing arrangements and private securities placements.
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