What are the most important points in a co-founder agreement for a startup?

The excitement, the passion, the jubilation, what could possibly come between these dream cohorts that have formed the greatest company in the world? Unfortunately, lots of things and you should have your bases covered for when it does happen.

Just to preface, I’ve had some success with starting 2 internet based businesses along with spending a lot time/money navigating all the legal stuff.

Currently, I’m helping 100’s startups find and hire startup lawyers at prices that work for them with LawTrades.

Okay, now that we have some credibility out of the way, let’s get it on.

As any new entrepreneur can tell you, the initial excitement over the new business usually drowns out any thoughts of how someone should legally protect themselves. However, it should certainly be one of the first things on your “to-do” list. A co-founder agreement is the prenuptial agreements equal in the business world. Let’s face it, partnerships split up and co-founders who were once best friends can quickly find themselves at each others throats over what their portion of the business should be.

What is it?

A co-founder agreement offers a layer of protection when it comes to separating from your former business partner. The agreement essentially states that you were once on the same page as the other co-founder and serves as an understanding of what everyone assumed the natural flow of the business would be as it progressed. This forces the co-founders to hash out the often difficult and controversial details in the early stages of the company so that the company is primed for success.

Important points

Some of the important points to cover within the co-founder agreement include a business plan, the direction of the company, the legal structure, expected salaries, who is contributing what, ownership allocations, roles and responsibilities, and normal operating procedures. Many partnerships end upon the claim that one partner didn’t do enough or did too much by micromanaging or overstepping their bounds. Therefore, having roles and responsibilities in the co-founder agreement can substantiate an accusation down the road.

Vesting is also another important topic to consider and a great article to read can be found at http://blog.simeonov.com/2010/04… 

Perhaps just as important as the agreement itself is the personality of the person that you’re going into business with. Although everyone may have the same vision for the business, if your personalities clash or your work ethics are different, it’s only a matter of time before a disagreement occurs.

Due to the importance of the founder’s agreement, it should be drawn up and reviewed by an attorney who is well versed in such a field. Do not attempt to draw this up yourself or use a freelancer (such as those found at oDesk or another site) as experience is needed. At LawTrades, we can connect you with an affordable and experienced attorney who can draw this agreement up in a rapid fashion.