Company founders should consider putting a founders' agreement in place as soon as possible before company formation. 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.
When should I use a founders' agreement?
Use this founders' agreement:
when you and up to four 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 technology project with up to four other founders
What's included in a founders' agreement?
This founders' agreement covers:
who the founders are
how shares will be owned
the roles of the founders
the founders’ responsibilities
when shares will vest
What's a founders' agreement?
A founders' agreement is a contract between the founders of a company that defines their roles, rights and obligations as founders of the company. A founders' agreement also specifies how company shares will be divided amongst the founders and when the shares will vest.
Do I need a founders' agreement?
Founders' agreements protect an individual founder’s interest 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.
What’s a vesting period?
‘Vesting' is when the ownership rights in the shares pass to the founder. A 'vesting period' is the period of time the founder must work for the company in order to fully own the shares in the company. For more information, you can read our guide on Founders' agreements.
What’s a share cliff?
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. Where a founder leaves during the share cliff, they will leave without any equity in the company. For more information, you can read our guide on Founders' agreements.
What is the project name?
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.
What is the project description?
The project description sets out what you wish to achieve by setting up the company.
How many shares should be issued?
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 four 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.
Can I enter into a founders' agreement after the company has been incorporated?
A founders' agreement can be entered into before and after a company is incorporated. 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.
Ask a lawyer where:
the founders are not individuals
more than four individuals wish to found a company
the founders are based outside of England and Wales
the document doesn't meet your needs or cover what you want
This agreement is governed by the law of England and Wales.