Introduction

 

Co-founding a company can bring excitement as everyone has the same goal, different abilities and similar passion. If roles overlap, conflicts develop or things change, not having a Co-Founders’ Agreement could make everything confusing and difficult.

 

Although a number of startups draw up simple documents to distribute equity and outline tasks, some key clauses are usually not included, which can lead to misunderstandings, hurt feelings or ruin the business.

 

Let’s look at the key clauses that startups miss, although they are very important for every business.

 

Vesting Schedule for all founders

 

Why it matters: Make sure that a founder does not leave early and take away a major share of the company.

 

• What to include:

1. 4 years are required for an employee to start using vested options and 1 more year for the remaining shares.
2. Vesting in reverse, especially when the equity is given at the beginning.
3. Special requirements for dealing with acquisitions or terminations, called acceleration clauses.

 

Missed consequence: A person who is co-founder but leaves early, confidentiality keeps 33% ownership of your startup afterwards.

 

IP Assignment and Ownership

 

Why it matters: It proves that the company’s main technology/IP is legally owned by the firm, not just by its founders.

 

• What to include:

1. Provision assigns all company inventions, works and intellectual property to the employer.
2. Signing up for projects previously done when the company was not incorporated.
3. Ensure the IP is unique and without any outstanding problems that might encumber it.

 

Missed consequence: Fights over whether a certain code, design or brand is owned by a company.

 

Roles and Decision-Making Powers

 

Why it matters: Clears up any confusing issues about task allocation and decision-making in the team.

 

• What to include:

1. Specified titles for people such as the CEO, CTO and CMO.
2. This covers decisions on where and how authorities can be used.
3. Systems used to resolve important conflicts.

 

Missed consequence: There can be confusion and fights over leadership among members.

 

Founder Commitment & Time Contribution

 

Why it matters: It sets out how much time employees need to set aside, especially if they are part-time workers.

 

• What to include:

1. People who are interested in jobs may choose to work either full-time or part-time.
2. Steps for revealing and gaining permission for things related to your work should occur outside your job.
3. There are minimum rules about how much employees should work.

 

Missed consequence: A feeling of resentment may develop when founders have different levels of commitment.

 

Founder Exit & Buyback Rights

 

Why it matters: It helps with any form of exit a business may take.

 

• What to include:

1. The fundamentals of what separates a good leaver from a bad leaver are described.
2. Any additional founders or companies are given the right to consider purchasing the e-commerce business before anyone else.
3. Outsiders’ methods or processes that determine the cost.

 

Missed consequence: Failure to address exits from companies may result in lawsuits or worthless stock ownership.

 

Deadlock Resolution Mechanism

 

Why it matters: Crucial since it helps work out disagreements among co-founders about major decisions.

 

• What to include:

1. The method involves using a special advisor or rotating the CEO.
2. Selecting to solve the case in mediation or arbitration rather than taking it to court.
3. A company uses drag-along and tag-along clauses to help with decisions related to acquisitions.

 

Missed consequence: Difficulty within the company in determining what to do or how to operate.

 

Capital Contributions and Founder Loans

 

Why it matters: With ensured tracking, the company can avoid arguments about sharing equity or repayment.

 

• What to include:

1. Records of the money and commodities given as donations.
2. Whether the debt from the founder’s initial investment will be returned, converted into shares or regarded as something lost.
3. What future financing plans are needed for the company.

 

Missed consequence: A Dispute might occur over the matter of being reimbursed or the dilution of the company.

 

Confidentiality and Non-Compete Clauses

 

Why it matters: The purpose of this is to protect the startup from letting out private information when a founder departs.

 

• What to include:

1. Non-disclosure agreements.
2. No attempt to influence or entice clients or employees must be made.
3. Having non-compete times that are right for both parties and covering the right area.

 

Missed consequence: Ex-founders may apply your company’s methods to create competition.

 

Equity Reallocation Triggers

 

Why it matters: It compensates for things that may go wrong with performance over time.

 

• What to include:

1. Provision for adjusting capital based on the meeting of set goals or performance.
2. How to address and solve disputes.

 

Missed consequence: Frustration arises when underperforming founders do not give up some of their equity.

 

Founders’ Divorce Clause

 

Why it matters: Gets ready in case a relationship breaks down.

 

• What to include:

1. Measures set up to end or stop a major investment in the case of a conflict.
2. Proper process set for the moment when employees leave or transfer to a different job.

 

Missed consequence: When I started, I did not realize that a harmful relationship with no simple solution would develop at work.

 

Bonus Clauses

 

• Elucidates how decisions are made as the company extends its operations.

• Using the right fundraising strategy prevents arguments about starting small instead of raising VC money to grow.

• What will take place if the founder suddenly passes away or is unable to run the company?

 

Conclusion

 

A Co-Founders’ Agreement is not just a legal formality — it’s a roadmap for how you work together, resolve issues, and protect your company. The best time to draft it? Before there’s any money, product, or tension. The second-best time? Now.

 

Don’t rely on handshake deals or templates alone. Work with a startup-savvy lawyer, and revisit your agreement as your business evolves.

 

Disclaimer

 

The information provided in this blog is purely for general informational purposes only. While every effort has been made to ensure the accuracy, reliability and completeness of the content presented, we make no representations or warranties of any kind, express or implied, for the same. 

 

We expressly disclaim any and all liability for any loss, damage or injury arising from or in connection with the use of or reliance on this information. This includes, but is not limited to, any direct, indirect, incidental, consequential or punitive damage.

Further, we reserve the right to make changes to the content at any time without prior notice. For specific advice tailored to your situation, we request you to get in touch with us.