Founders' agreement: 12 clauses you must include
Clauses every founders' agreement needs: equity split, vesting, roles, decision-making, exits and intellectual property.
By Editorial Team
A large share of startups break up not because of product or market but because of disputes between founders. A founders' agreement reduces that risk by putting everyone's expectations in writing. For legal validity, always get a lawyer's help.
12 core clauses
- Equity split: Who owns what percentage and why. Splitting equally is not always fair; base it on contribution.
- Vesting: Earning shares over time. Typically 4 years with a 1-year cliff.
- Roles and responsibilities: Who owns which area and who has the final say.
- Full-time commitment: How much time each founder will give.
- Decision-making: Which decisions need unanimity and which a majority.
- Salary and spending: Who is paid when, and approval limits for company spending.
- IP assignment: All code, design and brand relating to the company belong to the company; see the IP guide.
- Non-compete and confidentiality: Provisions limiting a departing founder from starting a rival or sharing secrets.
- Exit scenarios: What happens to the shares of a good and a bad leaver (buy-back right).
- Share transfer rules: Conditions for selling shares to third parties and pre-emption rights.
- New partners or investors: How dilution is handled; see the cap table guide.
- Dispute resolution: An order such as mediation first, then legal routes.
How to set the split
Weigh contributions such as the idea, full-time work, capital, sector experience and connections. Use a transparent method everyone accepts and set conditions for revisiting it later.
Why vesting matters
If a founder leaves after 6 months owning all shares, ownership sits with someone who no longer works. Vesting prevents this and is standard practice investors expect. For investor talks, see what a term sheet contains.
Common mistakes
- Trusting friendship and writing nothing
- Splitting equally and leaving roles unclear
- Not applying vesting
- Leaving IP in a personal name
Next step
Discuss a draft among yourselves, then have a lawyer review it. For company structure, see our company type guide.
This guide is for general information only and is not legal, financial or investment advice. Check official sources and consult professionals for current terms.
