What a founders agreement actually needs to cover
A template gives you the shape of the document. It cannot make the decisions underneath it, and those decisions are the part that actually matters.
Founders & Startups
What a Founders Agreement Actually Needs to Cover
A template gives you the shape of the document. It cannot make the decisions underneath it, and those decisions are the part that actually matters.
A founder builds the company on a template pulled from the internet. Clean formatting, confident clauses, wrong jurisdiction, wrong assumptions about who owns what and when. It works right up until two co-founders disagree, or one of them leaves.
A founders agreement is not a form to fill in. It is a set of decisions: what each founder actually owns, what happens if one of you leaves early, who has final say when you disagree. A template can hold the words. It cannot make the decisions for you.
Equity and vesting
Splitting equity is the easy part. Vesting is where templates go wrong, because vesting schedules assume a standard shape: four years, one year cliff, monthly after that. Your business might not fit that shape. What matters is deciding, deliberately, what “earned” means for your business, not copying a schedule because it is the one everyone uses.
Roles and decision rights
Two founders rarely split decision-making evenly in practice, even when they split equity evenly on paper. A founders agreement should say, in writing, who has final say on product, who has final say on hiring, and what decisions need both of you to agree. Leaving this unwritten does not avoid the conflict. It just delays it to the moment you can least afford it.
IP assignment
Work built before the company existed, on a laptop, in a bedroom, does not automatically belong to the company once you incorporate. If a founder built the first version of the product before signing anything, that IP needs to be formally assigned to the company. Investors will ask. A template will not catch this if nobody thinks to check.
This is the clause most founders skip, because it feels pessimistic to plan for a breakup before the relationship has started. It is also the clause that matters most.
What happens if someone leaves
A good leaver and bad leaver structure decides what happens to unvested equity if someone leaves, and on what terms. Without it, a co-founder who leaves after four months can still hold a meaningful stake in a company they no longer work on.
Deadlock
Two founders, fifty-fifty, disagreeing on something that matters. No casting vote, no tiebreaker, no process. That is a deadlock, and it is common enough to deserve its own clause: a named mechanism for resolving it, agreed while you are still on good terms, not invented under pressure when you are not.
Why a template cannot do this part
A template gives you the shape of a founders agreement: the headings, the standard language, the structure everyone recognises. What it cannot give you is the decision-making underneath it, because those decisions are specific to your business, your co-founders, and how you actually intend to run the company. The template is the easy part. The conversation it is meant to record is the part worth getting right.
Common questions
Do we need a founders agreement if we’re already incorporated?
Incorporating sets up the company. It does not decide vesting, roles, IP assignment, or what happens if a founder leaves. Those need a separate agreement between the founders themselves.
Can we just use a free template?
A template can give you the shape of the document. It cannot make the underlying decisions, equity, vesting, roles, leaver provisions, for you. Those decisions are specific to your business and are the part most likely to matter later.
What’s the difference between a founders agreement and a shareholders agreement?
A founders agreement usually covers roles, vesting, and what happens if a founder leaves before formal share structures are in place. A shareholders agreement governs the company once shares are issued. Many businesses need both, at different stages.
What happens if a co-founder leaves after a few months?
That depends entirely on what the founders agreement says about vesting and leaver provisions. Without one, the departing founder may keep their full original stake regardless of how long they actually worked on the business.
When should this be put in place?
Before it feels necessary. Once there is friction between co-founders, or real value in the business, the conversation gets harder, not easier.
If this isn’t in place yet
It’s worth a short conversation before it becomes urgent.