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Step by Step Guide to Creating a Founders' Agreement

There’s undeniably a lot that goes into creating a startup business, and with so much to juggle, it’s natural that things get missed. Whilst some can be dealt with at a later date, a founders' agreement is not one of them. For startup businesses, this agreement is essential, and that’s why we’ve compiled this short guide on everything you need to know about it.

What is a founders' agreement?

First of all, let’s take a look at the founders' agreement definition. In essence, a founders' agreement is a legally binding contract that stipulates who the founders of a business are, what their roles will be, what each person will contribute, equity ownership, and what happens if a founder wants to leave the company.

When should a founders' agreement be drawn up?

Due to the sensitive nature of what a founders' agreement involves, you should be looking at completing a founders' agreement template as soon as your startup is created. Doing so covers every founder and makes it clear who does what and for what compensation.

What should a founders' agreement include?

Every business is different which means every founder's agreement is different. With this in mind, there’s no hard and fast template to follow, but there are a number of things you should look to include at a basic level. They include:

The names of the startup founders

Everyone who is considered a founding member of your startup needs to have their name listed on the agreement.

The company name

Your company’s name might change in the future, but you still need to include the current name on your founders' agreement so it’s clear which business it pertains to.

The ownership structure

One of the most important parts of a founders' agreement is listing which founder owns what percentage of the business, as well as their roles, including the management interest percentage. You should also make it clear who is responsible for what and who will have what powers.

Capital

Founders tend to contribute to a company in order to get it off the ground, so it’s important every founder’s capital contributions are listed

Plan of action

This can cover a wide scope of things, including what the goal of the business is, how money will be managed, and who is in charge of budgeting

Other things you may choose to include could be how salaries will be paid, dispute resolution, dissolution, removing founders' intellectual property, equity and stocks, and taxes.


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Creating a founders' agreement

Creating a founders' agreement isn’t as hard as it sounds if you use a template. That being said, it’s worth getting professional guidance with anything accounting related, such as paying taxes and managing cash flow. The Accountancy Cloud team can help with this.

Get in touch with us to find out more.


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