MAKE YOUR FREE Founders Agreement
What we'll cover
What is a Founders Agreement?
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.
When should I use a Founders Agreement?
Use this Founders Agreement:
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when you and up to 4 others are founding or have founded a company
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to set out how the company will be owned
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to set out each founder’s rights and responsibilities
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when you are working on a project (eg technology project) with up to 4 other founders
Sample Founders Agreement
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FOUNDERS' AGREEMENT
This Founders' Agreement (Agreement) is made on the date of last signature set out below between:
- of , , ; and
(each a Founder).
Background
- The Founders are working together on a project known as , which can be described as (the Project).
- .
- The Founders now wish to agree to the ownership structure of the Company and to clarify several other matters.
The Founders Agree
- For the purposes of this Agreement:
- Early Leaver means a Founder who leaves the Company within 4 years of the Vesting Period Start Date and who is notified in writing by the other Founders that they are now an Early Leaver. Founders may leave the Company either i) voluntarily by serving written notice to the other Founders or ii) by the other Founders, acting reasonably, deciding unanimously to remove the Founder and giving the Founder written notice of this decision.
- Project IP means all existing or future Intellectual Property Rights which relate to or are embodied in the Project or any of the technology created as part of the Project.
- Intellectual Property Rights means without limitation all existing or future intellectual and industrial property rights, anywhere in the world including any Invention, patent, utility model right, copyright and related right, trade mark, trade name, internet domain name, design right, design, service marks, trade secret, database right, topography right, right in get-up, right in goodwill or to sue for passing off and any other right of a similar nature, whether registered (or capable of registration) and the right to apply for any of these.
- Incorporation Date means the date on which the Founders the company.
- Shares has the meaning given to this word in clause.
- Share Cliff means where a Founder’s shares are subject to a Share Cliff, no shares will vest to that Founder in the 12 month period following the Vesting Period Start Date. If the Founder becomes an Early Leaver during this Share Cliff period, the Founder will lose their entitlement to any Shares.
- Total Shares means the total number of Shares a Founder may receive pursuant to this Agreement, as set out in the table in clause.
- Vesting Period means the period starting on the Vesting Period Start Date and ending 4 years later. During this period, the Shares allocated to the Founder will vest at the rate of 1/48th of the Total Shares per month, subject to any Share Cliff that may be in place. Shares will vest on the of each month. Where a Founder becomes an Early Leaver, that early Leaver will lose their entitlement to any Shares which have not yet vested.
- Vesting Period Start Date means the .
Ownership of Intellectual Property
- Each Founder represents and warrants that they are entitled to use any intellectual property that they contribute to the Project for the purposes of the Project and this Agreement.
Ownership Structure of the Company
- This Agreement governs the vesting of shares in the Company (the Shares).
- The Founders will take all steps required from time to time to ensure the ownership of the Shares reflects what is detailed in this section.
- When fully vested, the ownership of Shares shall be as follows:
Founder Total Shares Approx. Percentage - Where indicated in the table below, a Founder’s Shares will be subject to a Vesting Period and/or a Share Cliff.
Founder Vesting Period
Share Cliff
- Where the Shares allocated to a Founder are not subject to a Vesting Period or Share Cliff, that Founder will be entitled to their Total Shares from the Vesting Period Start Date.
- For example, where a Founder’s Shares are subject to both a Share Cliff and a Vesting Period and the Founder remains with the Company for the entire 4 year vesting period, no Shares shall vest in the first 12 months after the Vesting Period Start Date, 13/48th of that Founder’s Total Shares shall vest in month 13, and then Shares shall continue to vest at a rate of 1/48th of that Founder’s Total Shares until all Shares are vested.
Confidentiality
- The Founders agree to keep details of the Project confidential. Disclosure of the Project will occur on an as-needed basis and only upon the agreement of all of the Founders.
Miscellaneous
- Each Founder represents and warrants to the other Founders that they are not a party to any agreement or arrangement which would restrict such Founder's ability to perform their obligations as set forth above and that no third party can claim any rights to the Project IP which may be developed by any Founder who is subject to this Agreement
- This Agreement constitutes the entire agreement between the Founders and supersedes any prior representations and communications, whether oral or written.
- This Agreement may be modified only in writing signed by all Founders.
- If a provision is invalid or unenforceable, the remaining provisions will remain in effect and the Founders will amend this Agreement to reflect the original agreement to the maximum extent possible.
- This Agreement excludes the Contracts (Rights of Third Parties) Act 1999 and only the Founders are entitled to enforce the rights under this Agreement.
- This Agreement shall be governed and interpreted according to the law of England and Wales and all disputes arising under the Agreement (including non-contractual disputes or claims) shall be subject to the exclusive jurisdiction of the English and Welsh courts.
Agreed to by:
| _________________________________ | _________________________________ |
About Founders Agreements
Learn more about making your Founders Agreement
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How to make a Founders 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
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What is the name of the project?
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Provide a description of the project.
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Have you already incorporated the company?
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If so, what is the company’s name and number?
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Founders
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How many founders are there and what are their details (ie names and addresses)?
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Will this agreement set out what the founders' responsibilities will be?
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If so, what responsibilities will each founder have?
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How many shares will be issued to each founder?
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Will each founder be subject to a vesting period?
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Will each founder be subject to a share cliff?
Shares
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From what date will the shares start vesting?
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On what date will the shares vest each month?
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Common terms in a Founders Agreement
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:
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that the Agreement may only be modified in writing after it has been signed by all founders
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the Founders Agreement constituting the entire agreement between the founders
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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
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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.
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Legal tips for making a Founders Agreement
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:
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adopting a Shareholder agreement, to set out the relationship between shareholders of a private limited company
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making Articles of association, setting out how the company is run and how decisions are made
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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:
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deciding on the type of company you wish to form
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choosing a name for your company (this must comply with the company naming requirements)
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choosing a registered address for your company
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appointing a company director and, where necessary, a company secretary
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deciding how many shares you want to issue and at what value
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preparing the relevant documents for your company
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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:
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the founders are not individuals
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more than 4 individuals wish to found a company
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the founders are based outside of England and Wales (eg in Scotland)
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the company isn’t a private limited company (eg if it’s a public company)
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the Founders Agreement doesn't meet your needs or cover what you want
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Founders Agreement FAQs
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What is included in a Founders Agreement?
This Founders Agreement template covers:
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who the founders are
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how shares will be owned
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the roles of the founders
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the founders’ responsibilities
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when company shares will vest
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Why do I need a Founders Agreement?
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.
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What’s a vesting period?
‘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.
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What is 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. If a founder leaves during the share cliff, they will leave without any equity in the company. For more information, read Founders' agreements.
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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.
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What is the project description?
The project description sets out what you wish to achieve by setting up the company.
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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 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.
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Can I enter into a Founders Agreement after the company has been incorporated?
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.
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