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Founders Agreements are legally binding contracts between the founders of a company that define their roles, rights and obligations as founders of the company. Company founders should consider putting a Founders Agreement in place as soon as possible before company formation to protect themselves.
For use in England and Wales only.
Use this Founders Agreement:
when you and up to 4 others are founding or have founded a company
to set out how the company will be owned
to set out each founder’s rights and responsibilities
when you are working on a project (eg technology project) with up to 4 other founders
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This Founders' Agreement (Agreement) is made on the date of last signature set out below between:
(each a Founder).
| Founder | Total Shares | Approx. Percentage |
|---|---|---|
|
| Founder | Vesting Period | Share Cliff |
|---|---|---|
|
Agreed to by:
| _________________________________ | _________________________________ |
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This Founders Agreement template covers:
who the founders are
how shares will be owned
the roles of the founders
the founders’ responsibilities
when company shares will vest
Founders Agreements protect individual founders’ interests in a startup. Use this Founders Agreement when you plan on setting up a company with other individuals and you want to clarify what you are setting out to do and how the company will be owned.
This straightforward Founders Agreement can be used to set out the rights and responsibilities of each company founder before the company is formed. It is designed to protect each founder’s interests and to prevent conflict down the line.
‘Vesting' is when the ownership rights in shares pass to a shareholder (eg a founder). A 'vesting period' is the period of time for which the founder must work for the company in order to fully own the shares in the company. For more information, read Founders' agreements.
A ‘share cliff’ is a grace period before any shares begin to vest (ie before the ownership of the shares begins to transfer to a founder). The ownership of the shares will not begin to transfer until after a specified period of time (ie the 'cliff) has passed. If a founder leaves during the share cliff, they will leave without any equity in the company. For more information, read Founders' agreements.
‘The project’ is essentially another way of saying ‘your startup’. The project name is the name you have given to what you are setting out to do. This could be the proposed name for your company.
The project description sets out what you wish to achieve by setting up the company.
In order to form a private limited company, one or more shares must be issued, set out in a 'statement of capital' and normally distributed amongst directors and investors.
It is for the founders to decide on how many total shares should be issued. However, when issuing shares to founders, you should consider the total number of shares you want to issue. For example, where there are 4 founders and 1,000 shares are to be issued, the number of shares issued to each individual founder should not exceed 1,000 shares (ie the total number of shares) when added together.
For more information on shares, read Types of shares.
A Founders Agreement can be entered into before or after a company is incorporated (ie formed and registered with Companies House). The terms of a Founders Agreement are usually agreed to prior to incorporation of the company and this Agreement is signed either simultaneously with the incorporation process or prior to the incorporation process. Where the company has already been registered, you can also consider entering into a Shareholders' agreement.
Making a Founders Agreement online is simple. Just answer a few questions and Rocket Lawyer will build your document for you. When you have all of the details prepared in advance, making your document is a quick and easy process.
To make your Founders Agreement you will need the following information:
Project
What is the name of the project?
Provide a description of the project.
Have you already incorporated the company?
If so, what is the company’s name and number?
Founders
How many founders are there and what are their details (ie names and addresses)?
Will this agreement set out what the founders' responsibilities will be?
If so, what responsibilities will each founder have?
How many shares will be issued to each founder?
Will each founder be subject to a vesting period?
Will each founder be subject to a share cliff?
Shares
From what date will the shares start vesting?
On what date will the shares vest each month?
Founders Agreements are used to set out the rights and responsibilities of company founders before the company is formed. As a result, this Founders Agreement covers:
Party details
The Founders Agreement starts by identifying the company founders and clarifies that the Agreement is made on the date of the last signature to the Agreement.
Background
This section sets out the background to the Founders Agreement and explains that the founders wish to set out answers to certain ownership questions and to clarify other matters. It also provides a description of the project the founders are working on and what this entails. Where relevant, if the company has already been registered, this section will provide the company’s details.
The Founders agree:
This section contains certain key terms of the Agreement and provides definitions for them. For ease of identification, these terms are capitalised throughout the Agreement. Examples include ‘Early Leaver’, ‘Incorporation Date’, ‘Shares’, ‘Share Cliff’ and ‘Vesting Period’.
Ownership of intellectual property
This section sets out how any intellectual property (IP) will be owned. Who owns IP rights depends on whether the company has already been incorporated. If a company has already been formed, the company is the owner of the IP. If the company has not yet been formed, the founders own the IP collectively and agree to transfer the IP to the company once it is formed.
Founder responsibilities
This section is only included if the Founders Agreement sets out the founders’ responsibilities. It provides details of the specific responsibilities of each founder.
Ownership structure of the company
This section details how the company will be owned by the founders. This includes how many company shares each founder owns and whether they are subject to a vesting period and/or share cliff. It also provides details of when the founders will be entitled to their total shareholdings.
Confidentiality
This section addresses how confidentiality will be ensured in relation to the project.
Miscellaneous
This section covers certain ‘boilerplate clauses’ which address various other points of law that govern how this Agreement operates. They include:
that the Agreement may only be modified in writing after it has been signed by all founders
the Founders Agreement constituting the entire agreement between the founders
excluding the Contracts (Rights of Third Parties) Act 1999, meaning that third parties (ie not the founders) that would otherwise be able to enforce obligations under this Agreement under this Act cannot do so
the jurisdiction of the Agreement (ie which country’s legal system must be used to resolve any disputes)
If you want your Founders Agreement to include further or more detailed provisions, you can edit your document. However, if you do this, you may want a lawyer to review or change the Agreement for you, to make sure it complies with all relevant laws and meets your specific needs. Ask a lawyer for assistance.
Make sure a Founders Agreement is the right document for you
You should use a Founders Agreement when you’re in the early stages of starting a company in England and Wales with up to 3 co-founders.
If your company has already been incorporated and running for a while, you should consider adopting a Shareholder agreement instead of a Founders Agreement. While both documents are similar in nature, Founders Agreements are designed to be used in the early stages of the company, while shareholder agreements should be used later in the company life cycle. For more information, read the FAQ ‘Can I enter into a Founders Agreement after the company has been incorporated?’ and Founders’ agreements.
If you are starting a business but it is not a company, check what document is suitable for your business structure. For example, if you’re starting a general partnership, you should adopt a Partnership agreement or, if you’re starting a limited liability partnership (or ‘LLP’), you should enter into an LLP agreement.
If your company isn’t a private limited company, there are more than 4 company founders or this document otherwise doesn’t meet your needs, Ask a lawyer for assistance.
Consider what other documents you may need
Founders Agreements should be used in the early stages of setting up a company and will often be entered into before the company is founded. However, Founders Agreements are not the only documents you should make in relation to your company. Once your company has been incorporated, you should consider:
adopting a Shareholder agreement, to set out the relationship between shareholders of a private limited company
making Articles of association, setting out how the company is run and how decisions are made
passing Shareholder resolutions, whenever company resolutions (ie decisions) need to be made
Remember to register your company
To start a company, you need to incorporate it with Companies House. This is a step required by the Companies Act 2006.
While the incorporation process may seem daunting, you can usually do it by following a few simple steps. These include:
deciding on the type of company you wish to form
choosing a name for your company (this must comply with the company naming requirements)
choosing a registered address for your company
appointing a company director and, where necessary, a company secretary
deciding how many shares you want to issue and at what value
preparing the relevant documents for your company
checking the filing requirements for the company
For more information, read How to register a company in 5 steps. For more information on what happens next, read What happens after you register your company.
Understand when to seek advice from a lawyer
Ask a lawyer where:
the founders are not individuals
more than 4 individuals wish to found a company
the founders are based outside of England and Wales (eg in Scotland)
the company isn’t a private limited company (eg if it’s a public company)
the Founders Agreement doesn't meet your needs or cover what you want
