What a founders agreement is, and why it causes trouble
It is the all in one contract co-founders sign among themselves, usually from an online template or a European form, sometimes before the company even exists. Equity splits, roles and titles, vesting, decision making, departures, IP, non competes, disputes. Signing one feels responsible. In a Delaware C-corp that plans to raise venture money, it mostly creates problems.
It repeats documents that already govern you
A Delaware corporation runs on its certificate of incorporation, its bylaws, its board consents and Delaware law. Equity and vesting live in each founder's stock purchase agreement, and IP lives in each founder's assignment. Once the two say different things, nobody knows which one wins and someone bills to sort it out.
It often cannot do the job it was signed for
Many are signed by the founders alone, with the company not a party, or before the company exists. So the company may have no right to buy back a departing founder's unvested shares, may not own the IP, and the shares may never have been properly issued at all.
It works against how Delaware companies are run
Under Delaware law the board manages the company. These agreements often give each founder a veto, or require every founder to agree on hiring, budgets, fundraising or a sale. Delaware courts have struck down stockholder agreements that limited the board this way. The law has since changed to allow more of them, and even where they are valid they still hand one founder a veto over the company's future.
Unanimous consent hands one person a hold over everything
If any change needs every founder's signature, a founder who leaves, stops responding or falls out with the team keeps that veto. We regularly see a sale, a new share issuance or an IP license waiting on a signature nobody can get. It works while everyone is aligned, and fails exactly when the agreement is supposed to matter.
Investors will ask you to cancel it
At the first priced round, investors bring their own voting agreement, right of first refusal and co-sale agreement, and investors' rights agreement. Those cover the same ground, so the founders agreement has to be ended or amended. That is legal cost in the middle of a financing, and if ending it needs every founder's consent, one unhappy founder can hold up the round.
Foreign templates import rules that do not travel
A founders or shareholders agreement is normal in Central and Eastern Europe and is often required under local law. Copied into a Delaware company, the contract penalties that are routine in Europe are often unenforceable in the US, broad non competes after a founder leaves are generally unenforceable in California, and the governing law clause can point at a different country than the company's own documents.
What we recommend instead
Everything founders want from a founders agreement comes with the standard formation package, in a form investors already know. One set of documents, and no second contract to reconcile.
Where a separate agreement still makes sense
We are not saying this document is always wrong. These are the cases where we draft one.
What it costs
You get the number before the work starts, not after.
Founder equity documents
from $750
For a company that already exists: stock purchase agreements with vesting, 83(b) support and an IP assignment for each founder.
Formation with the founder package
from $2,900
Delaware incorporation in the right order: charter, bylaws, first board consent, founder stock with vesting, 83(b) support and IP assignments.
A separate agreement, where you need one
quoted
A 50/50 voting or deadlock agreement, an LLC operating agreement, or a shareholders agreement for a company formed outside the US.
Questions founders ask
Do I need a founders agreement?
You need clear written terms with your co-founders, which is not the same thing as that document. In a Delaware C-corp the terms belong in each founder's stock purchase agreement, their IP assignment and the first board consent, because those are signed by the company and that is what makes them work. A separate all in one contract usually restates them and then conflicts with them.
Can I just use a free founders agreement template?
The template is not really the problem, the format is. Most are signed by the founders only, with the company not a party, so the company gets no right to buy back unvested shares and no ownership of the IP. Some are signed before the company exists, which means the shares were never properly issued. You can sign one and still have none of the protection you thought you bought.
What is the difference between a founders agreement and a shareholders agreement?
A shareholders agreement is the normal instrument in much of Europe and is sometimes required under local law. A founders agreement is the startup version of the same idea. Neither fits a Delaware C-corp well, because Delaware puts management with the board, and investors bring their own voting and share transfer documents at the first priced round.
Where does vesting go if not in a founders agreement?
In the stock purchase agreement between the company and each founder. Vesting only protects the team if the company can buy back unvested shares when someone leaves, and that repurchase right has to sit in a document the company actually signs. Four year vesting with a one year cliff is the standard, with credit for pre incorporation work where it is deserved.
We already signed a founders agreement. What should we do?
Send it over. We read it against your charter, bylaws and stock documents, tell you where they conflict, whether the company is even a party, and what it commits you to. Usually the fix is to put the real documents in place and then terminate or amend the agreement, before a financing makes it urgent and expensive.
Will investors make us cancel it?
At the first priced round, usually yes. Investors bring a voting agreement, a right of first refusal and co-sale agreement, and an investors' rights agreement, and they will not accept a founders agreement that conflicts with them. Unwinding it mid financing costs legal fees, and if termination needs every founder's signature, one founder can hold up the round.
What does it cost to do this properly?
From $750 for founder equity documents where the company already exists, and from $2,900 for formation with the full founder package. A separate voting, deadlock or operating agreement is quoted as a fixed fee before we start. There is no hourly meter.
One of our founders is not in the US. Does that change anything?
Yes, in two places. The IP assignment has to reach through whatever local entity or employer of record that founder sits behind, and the vesting terms should say what happens if immigration or residency stops them contributing. Both are drafting choices, not blockers.
