What is a founders' agreement?

A founders' agreement records how co-founders intend to own, manage and contribute to a business, and how they will handle important changes. It can cover roles, equity, decision-making, intellectual property, departures and disputes.

It is most useful when it turns assumptions into decisions. “We trust each other” and “we have agreed how this will work” are compatible positions.

Consider two founders who split ownership equally. One expects both to leave their jobs immediately. The other expects to keep consulting for a year. The disagreement already exists, even if the business has not yet earned revenue.

1. Roles and time commitments

Agree who leads product, sales, finance and operations. Describe the expected time commitment, start date and any permitted outside work.

Separate a founder's shareholding from their operating responsibilities. A person may be an owner, director and employee, but those positions raise different questions when their involvement changes.

Write down what happens if the company cannot afford the planned salary. Unspoken expectations about pay can become disputes about fairness.

2. Contributions and equity

Record what each founder contributes: cash, existing technology, business relationships, full-time work or other assets. Explain how the agreed equity split relates to those contributions.

Distinguish a commitment from something already delivered. If a founder promises to contribute ₹5 lakh later, specify the timing and what happens if it does not arrive.

Keep the agreement consistent with the company's actual share records. An informal percentage on a presentation should not be the only evidence of an ownership promise.

3. Vesting and founder departures

Vesting is a way to connect ownership economics with continuing contribution. For founders who already hold shares, the arrangement needs a workable legal mechanism; writing “unvested shares disappear” does not make that outcome happen.

Discuss the vesting period, any recognition of past work, departure categories, pricing and the intended recipient of any transferred shares. Consider death, disability, voluntary resignation and serious misconduct separately.

Have the mechanism reviewed for company law, tax, enforceability and, where relevant, foreign exchange implications. Do not assume the company can always buy the shares back at the price written in a template.

4. Intellectual property and access

List the assets the business relies on: code, designs, trademarks, domains, repositories, customer materials and confidential know-how.

For each asset, ask who created it, under what contract, and who currently holds the rights and access. A freelancer's invoice and a confidentiality clause may not answer every ownership question.

Arrange appropriate written assignments or licences where needed. Identify assets a founder intends to retain personally so the company understands what it can use and on what terms.

Also plan the operational handover. Legal ownership is difficult to use if a departing founder controls the only administrator account.

5. Decision-making and spending authority

Agree which decisions each founder can take independently and which require consultation or approval. Set practical spending and signing limits.

Avoid requiring unanimous approval for every routine purchase. Equally, a founder should not discover that the other founder has promised substantial equity or signed a long-term commitment without discussion.

The contractual arrangements must be checked against the company's Articles and statutory decision-making requirements. A private agreement cannot override the Companies Act. Companies Act, sections 6 and 10.

6. Future fundraising and employee equity

Discuss how you will approach new investment and a future ESOP pool. Model dilution before making promises to employees or advisers.

You do not need to negotiate every possible investor term now. You do need clarity about who can negotiate, who must approve a proposal, and how material terms will be communicated between founders.

7. Transfers and disagreements

Decide whether a founder can sell shares to someone outside the team and what process applies first. Consider notice, response periods and how the price will be established.

For disagreements, create an escalation path: a structured discussion, an agreed mediator or adviser where appropriate, and a properly drafted dispute-resolution process. Avoid copying a forced-exit mechanism without considering whether both founders could realistically fund it.

8. Departures and handover

Cover company property, account access, unfinished work, customer communications and confidentiality. Employment, directorship and share ownership should each be addressed rather than treated as a single status.

Do not assume a broad post-exit non-compete will achieve the desired protection. Obtain advice on enforceability and use appropriate confidentiality, IP and handover terms for the actual risks.

Is a founders' agreement the same as a shareholders' agreement?

They can overlap, but the focus differs. A founders' agreement concentrates on the founding relationship; an investment shareholders' agreement also addresses the incoming investor's rights. The documents should work together.

When should we put it in place?

Before substantial commitments and informal promises accumulate. Revisit it when roles, ownership or funding plans materially change.

Ready to put founder expectations in writing? Book a free consultation with Corpernicus to identify the decisions your agreement needs to address.

This article explains drafting considerations. The enforceability and tax treatment of any arrangement require advice on its specific terms.