As a startup owner, you may be used to doing things and making decisions on your own. But as your business starts to scale, you’ll have to get used to working with others. This is particularly true if you gain business partners. To protect your business, however, you must know how to draft a founders agreement.
If this is something that’s completely new to you, don’t worry. This article will guide you through the process of writing one and how important it is. Let’s dive in.
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How to Write Founders Agreement
A founders agreement is a legal document that caters to certain questions involving ownership, expectations, and potential disputes. It is mainly there to help ensure that you and your business partners are on the same page. By establishing this agreement, you’ll be able to address potential issues that may arise before things get complicated.
The trick to writing this document is to keep things simple. Don’t overcomplicate the initial agreement, especially if your business is in the early stages. Pay attention to its contents instead of focusing on the legal jargon and the document’s structure.
Here’s a step-by-step guide on how you can start drafting the agreement:
Choose a template
Thankfully, there are templates that you can access online to help start drafting the founders agreement. You can choose one that suits your business best.
Complete the necessary information
The template you choose will require you to fill in the necessary information related to your business. Some of the things that you can write are the names of the parties, company name, location, and start date.
Discuss with other founders
Next comes the serious part: the hard conversations. This is where you will talk to co-founders regarding important matters like compensation, equity, and termination.
Having this conversation with a co-founder can be difficult and touchy. But you all need to find a compromise that will protect the interest of the company and each partner.
Seek legal assistance
Have a lawyer review the founders agreement so it can be an official document. A lawyer can also take care of the legal technicalities that you may not be aware of.
Once everything has been discussed and fixed, the document can be passed to other co-founders for review. Allow your co-founders to review the document together with their lawyers.
If everything is accepted, the document should be signed and dated. This is when the document becomes legally binding.
Use a Founders Agreement Template
An easy way to get started in your document is to use a template provided by Fill. Through a template, you don’t have to memorize the steps and write a document word for word.
You simply need to customize the template and supply it with the information you need. After that, you’ll be able to send the document for signing online.
Important Sections of a Founders Agreement
When writing a founders agreement, it’s important to add the following sections:
Names of the founders
The document should include the names of each individual involved in the business. The name of the company should also be listed in this section, even if you decide to change it later.
The structure of ownership should also be detailed in the agreement. This refers to the percentage of the company that each co-founder owns. As people leave and join the company, this number can change.
It’s also wise to detail the level of participation and responsibility each member has in the company.
This is simply a description of what the business plan is all about. Include a broad overview of the business and each founder’s interests.
Capital and contributions
Before becoming a founder of the business, each member has to contribute something. It can be in the form of cash, services, property, a promissory note, or something else. This information needs to be included in the Founders Agreement.
Roles and responsibilities
As friends, you may have a verbal agreement on what each person’s responsibilities and roles are in the business. But you have to put this into writing. The process of a founders agreement creation is important as it protects each individual in the business.
Arguments and disagreements are part of every relationship, even in business. By establishing a plan of action for such instances, you’ll be able to prepare and resolve disputes easily.
Always put these things into writing so that you can avoid complicated disputes with other co-founders.
How Fill Helps You Create Your Founders Agreement
Knowing how to create a Founders Agreement can be a big help for any business owner. But with Fill, you no longer have to write the document from scratch.
You can simply customize the template with your information. Once that’s done, you can invite your co-founders to collaborate on the document with you. Sign up for a free account at Fill to get started.