Drafting co-founder agreements

Starting a business with one or more partners means you should draft a co-founder agreement. A co-founder agreement will bind your partners to perform specific responsibilities, confer rights and obligations on each member and define the terms that will govern your business relationship.

Consider the checklist below to make sure your co-founder agreement is thorough and effective.

Define Roles
Co-founders may have different skill sets to maximise their expertise across a range of relevant fields. If this is the case sitting down with your partner or partners, assessing experience and education will be vital to understanding what specific role the partner will take on in the business. By including this in the contract business responsibilities are attributed to the best person for the job, and business relationships are more defined and will run more smoothly.

Company structure
Your businesses’ structure should be defined in the agreement including divvying up ownership in the business and detailing company hierarchy. Include clauses that state the shares each partner holds and the dividends they are entitled to. Outline the critical decision makers in your business amongst the partners and establish board requirements and selection criteria should your business grow to require a board.

Provide for sale or transfer
In the event of the sale of your business, your co-founder agreement should confer rights in the decision-making process. Include the right for your partner to buy out your share and strike the right balance between protecting minority co-founder’s rights but also taking account the weight of a majority decision.

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