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What is a Co-Founder Agreement?

A co-founder agreement is a legal document between the co-founders of a company that outlines the terms and conditions of their working relationship and the ownership, management and other responsibilities of each co-founder. It covers issues such as equity distribution, decision-making authority, and future equity issues, among others, to ensure that all co-founders are on the same page and to minimize conflicts and misunderstandings in the future.

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Founder or Co-Founder Agreement

It covers equity distribution among the co-founders.
It defines decision-making authority.
It addresses future equity issues.
It helps ensure all co-founders are on the same page.
It minimizes potential conflicts and misunderstandings in the future.

Contents of a Founder’s Agreement

The Founder’s Agreement contains the following:

Definition of business
Structure of the business to be adopted in the future
Ownership of Intellectual Property Rights (such as copyright, patent, trade mark, etc.)
Ownership stake of parties in the business
Roles & responsibilities of parties
Decision making & voting mechanism
Performance criterion & firing of parties
Exit rights of parties
Dispute resolution mechanism

Laws governing the Founder’s Agreement in India

The different laws which govern various aspects of Founder’s Agreement in India are as follows:

The Indian Contract Act, 1872
Arbitration and Conciliation Act, 1996
The Foreign Exchange Management Act, 1999
Companies Act, 2013
Indian Partnership Act, 1932
Limited Liability Partnership Act, 2008

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Frequently Asked Question

● Provides clarity on business One of the most important aspects that a Co-founder’s Agreement covers, is naming and defining the business in terms of what product would to be built, and/or what services would be offered. The clarity on this aspect avoids conflicts in the future amongst the founders. Also, it is only when after you would define the business that it would make sense to add a non-compete clause, that would prevent the founders to leave the business and build a competing business. ● Intellectual Property Rights (“IPRs”) There are a lot of IPRs that are created while the founders are working towards their business goals, such as codes, softwares, brand name, logo, financial plans, marketing plans, process, etc. These could be a matter of copyright, trademark, patent, know-how, etc. And these ideally become the property of the founder who creates them. Therefore, it becomes very pertinent to transfer these IPRs in favor of the business, as these are created along the way by the founders while working for the business. ● Ownership The most important aspect of a business is the percentage of the ownership stake that each founder or co-founder will receive after the business adopts a more formal structure (in the shape of Partnership firm, or LLP or Company). This is by far the most important clause and needs much deliberation upon as majority of the disputes amongst the founders in the future, relates to this. ● Share Vesting If you offer the shares to the founders right upfront after incorporation of the company, they might leave the company by selling their stake and not stick and work for the company. This could be disastrous for the company’s interests. Therefore, you can opt for share vesting, in which case the shares will be granted to the founder, but these shares would vest in the founders after a particular time period. This demotivates the founders from leaving the company, because if they leave early they will get either nothing or very little percentage of the shares granted to them. ●Lock-in Do you want to put lock-in on the founder or co-founder’s shares? Lock-in simply means that they won’t be able to sell or transfer their shares to anyone during a specified lock-in period of say 1 year, or 2. ● Roles and responsibilities of founders The role and the responsibilities of each of the founders and co-founders need to be agreed upon amongst them and laid down in the Co-founder’s Agreement. Even though, in the beginning of the start-up journey everyone will be working on almost everything, yet you need to specify this for the sake for efficiency and clarity. It is much better once everyone is clear on their exact role in the business and for what they are responsible. It improves ethics, and provides efficiency and clarity. ● Decision making process There are a lot of decisions that are required to be made in a business, from product launch to marketing, there could be plenty of decisions that are required to be made. The more the number of founders/co-founders, the more chances are there of deadlocks in the decision making. How would these deadlocks be resolved? It is important to deliberate upon a pre-hand solution, so that deadlocks can be resolved in a timely manner before they affect the business. ● Performance benchmark and firing Imagine a situation, where one of the founders has lost interest in the business and starts delivering poor performance in the business, or takes up an alternate employment and is unable to give time to the business? Would it not be better, if you provide for performance benchmarks in the agreement, and fire the founders from the business if they fail to meet such benchmarks? You can provide for such arrangement in the Co-Founder’s Agreement. ● Dispute Resolution Most of the times, you are starting a new business, either with your friends, family or the people with whom you have close relations with (such as long-term professional colleagues) and in the beginning, everything seems to be going sweetly between them. This is the reason why they ignore to provide for any dispute resolution mechanism. However, as can be witnessed from a plethora of such-like start-ups, disputes are bound to arise. And it only makes sense that you provide for a mechanism to resolve it, one that saves time, cost and reputation, i.e. Arbitration. ● Non-Compete A non-compete prevents the founders from starting a competing business for a few years after he/she quits the start-up. ● Non-Solicit A non-solicit clause prevents such leaving founder/co-founder from soliciting away the clients, employees or the suppliers, when they themselves are leaving the start-up. ● Non-Disclosure Agreement There is a lot of important and sensitive information in any business, such as business idea or plan. If such information is leaked out and reaches a competitor’s ear, it can cause potential loss to your business. This is why you enter into an NDA, not only with the founders/co-founders, but also with your employees, since they will also have an access to a lot of pertinent information. Non-disclosure Agreement (NDA) is an agreement that protects such information and prevents the founders/co-founders or employees from leaking out such information to anyone. ● Exit Rights Even though these are the rights that you usually provide for in the Shareholders Agreement (SHA), however nothing stops you from agreeing to these rights in advance amongst your founders/co-founders.

The most appropriate time to enter into a Founder’s Agreement is when you along with your co-founders decide to start working upon a business plan.

Yes, the Founder's Agreement has to be executed on non-judicial stamp paper for respective value and get notarized from the notary person, in order to make the agreement a legally enforceable one.

The most important aspect of a business is the percentage of the ownership stake that each founder or co-founder will receive after the business adopts a more formal structure (in the shape of a Partnership firm, or LLP or Company). This is by far the most important clause and needs much deliberation upon as the majority of the disputes amongst the founders in the future, relates to this. There are a number of mechanisms in which the stake could be divided amongst the members. These can broadly be divided into three categories. a)Equal division: If the founders decided that there is an equal contribution by them towards the business, they can simply go for an equal stake. b)Division on the basis of efforts: Often, not all the founders or co-founders are contributing equal efforts towards the business. Maybe, one or only a few of them are engaged in the core tasks, and others are working on non-core tasks. Therefore, there could be division on the basis of efforts. c)Division on the basis of capital contribution: There can also be a division on the basis of the amount of capital (i.e. cash or cash-equivalent) contributed by the parties. d)Mix of above factors: Alternatively, there can be division of stake on the basis of the amount of efforts contributed as well as on the basis of the amount of capital contributed by each party. There are many different online toots that you can use to calculate the equity stake to be divided amongst the founders, that take into consideration a lot of factors, including the ones we discussed above. A couple of such websites are foundrs.com and seedcamp.com (and there are many others).

What our users have to say

We started our company as friends without defining roles, which soon caused friction. Lawyaar drafted a Co-founders Agreement clearly allocating responsibilities, decision-making authority, and equity. It saved our working relationship.

Arpit Jain, Jaipur

One co-founder was contributing capital while another was contributing technology, but nothing was documented. Lawyaar structured a Co-founders Agreement that balanced equity and responsibilities fairly. It avoided future disputes.

Nikhil Rao, Bengaluru

We were unsure what would happen if a co-founder exited early. Lawyaar included vesting schedules and exit clauses in the Co-founders Agreement. It protected the long-term interests of the company.

Rohan Chatterjee, Kolkata

During investor discussions, we were asked for a signed Co-founders Agreement. Lawyaar drafted an investor-ready agreement covering founder commitments and IP ownership. It helped us move forward confidently.

Kavya Mehta, Mumbai

Our startup faced disagreements on who had final authority on strategic decisions. Lawyaar clearly defined voting rights and deadlock resolution mechanisms in the Co-founders Agreement. It brought structure to leadership.

Sandeep Verma, Meerut

We were worried about intellectual property created by individual founders. Lawyaar included IP assignment and confidentiality clauses in the Co-founders Agreement. It legally secured all core assets for the company.

Pritesh Shah, Rajkot

One co-founder wanted the option to work part-time, which created imbalance. Lawyaar drafted clear time-commitment and non-compete clauses in the Co-founders Agreement. It aligned expectations.

Ananya Iyer, Chennai

We didn’t know how to handle founder disputes without going to court. Lawyaar included arbitration and dispute-resolution clauses in the Co-founders Agreement. It gave us a practical conflict-management path.

Mohit Bansal, Hisar

Our previous understanding was verbal, which worried us legally. Lawyaar converted everything into a comprehensive written Co-founders Agreement. It formalised our partnership professionally.

Farhan Ali, Aligarh

We wanted flexibility for future funding and dilution. Lawyaar drafted a Co-founders Agreement aligned with future fundraising and share dilution. It prepared us for scale.

Ritu Deshpande, Nashik

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What is a Co-Founder Agreement?

How It Works

Choose your required Document & pay

Fill required details

Schedule Call with Lawyer

Delivery of your Document

Founder or Co-Founder Agreement

Contents of a Founder’s Agreement

Laws governing the Founder’s Agreement in India

Why Lawyaar?

Frequently Asked Question

What is the importance of entering into such an Agreement?

When is the right time to enter into a Founder's Agreement?

Is the Founder’s Agreement required to be notarized?

How do I decide the equity/percentage split between myself and the co-founders?

What our users have to say

Arpit Jain, Jaipur

Nikhil Rao, Bengaluru

Rohan Chatterjee, Kolkata

Kavya Mehta, Mumbai

Sandeep Verma, Meerut

Pritesh Shah, Rajkot

Ananya Iyer, Chennai

Mohit Bansal, Hisar

Farhan Ali, Aligarh

Ritu Deshpande, Nashik

Startup Documents

Co-Founder Agreement

₹12999

Deliverables *

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