Founders Agreement

An agreement to outline all the important aspects of the relationship between the founders.

  • Overview
  • Benefits
  • Procedure
  • Why bigvakil
  • Documents Required

Founders Agreement Overview

The founders' agreement is an official contract or a legal agreement executed between the co-founders of the company while setting up a business. This agreement elucidates the roles, rights and, duties, responsibilities, ownership, liabilities, and investment proportion of each founder.

A founders' agreement should be made in the written format, not by an oral.

Two or more partners jointly can enter into the founders' agreement called co-partners/ parties.

All co-founders will enter into the agreement exactly while incorporating the business or company.

The objective of the founders' agreement is to avoid disputes regarding business, which may arise over time between co-founders. This agreement apparently set out the strategy of the founders, who should act within the ambit and should follow the mandatory provisions laid on.

Founders' agreements also help in tackling uncertain occurrences like the death of the co-founder, resignation, which directly affects the sustained growth and smooth running of the business or firm.

Benefits of a Founders Agreement

Determining the type of business entity:

The founders' agreement will clearly mention the nature and type of entity that should be established by the co-founders thereby setting the proper path to be followed.

Outlined business plans:

This agreement describes the vision and mission of the entity and sets the short term and long term goals to be achieved over a period of time.

Designating the roles and responsibilities:

Obviously, there will be overlapping roles and functions between co-founders without having a proper framework of the assigned roles. Therefore, it is important to designate the roles and responsibilities of the co-founders, in accordance with their area of mastery like marketing, operations, finance, etc.

Structure of ownership:

The founder's agreements will clearly specify the structure of ownership pertaining to the initial contribution made by the cofounder or the percentage of the equity shares held by the cofounder in case of a company, thereby avoiding any future conflicts in between them.

Decision making:

At a certain point in time, there will be an ideological conflict between co-founders, So these conflicts are to be handled through the proper decision-making process. Here the founders' agreement will formulate a procedure to be followed during the decision making process. If the voting system is adopted, then it should define the value of votes for each founder and provide a solution in case of a deadlock situation.

Compensation provisions:

This agreement laid down the scheme of compensation to be carried out, if anyone of the cofounder has violated the provisions mandated. Here, the proportion of the compensation to be made will be mentioned for every cofounder.

Expulsion of co-founders:

Any co-founder can be evicted from the company for indulging in fraudulent activities like misappropriation of funds, sexual harassment, and getting employed with other organisations. This agreement ensures a proper structure on how to deal with these situations and sorting out appropriate funds to be reverted to the expelled co-founder.

Confidentiality:

There was a separate clause on confidentiality in the founders' agreement, which makes an obligation for founders to not reveal the secrets of the business.

The procedure of drafting a founder’s agreement:

The procedure for drafting the founder’s agreement involves the following steps;

  • The draft of the founder's agreement is prepared by including all the required fields, like objectives of the company, terms, and, conditions to be followed by the co-founders.
  • Once the drafting process is complete, check if all mandatory provisions have been included, with no ambiguous clauses.
  • Add additional information that has to be furnished in the agreement, if required.
  • The final draft should be acknowledged by all the cofounders, that it has been scrutinised with acceptance of the aforementioned agreement.
  • Once all co-founders have agreed to the agreement, it should be notarized on a non-judicial stamp paper.
  • After notarizing, get the signature of all the co-founders on the agreement.
  • Before entering into the agreement, get expert guidance to avoid disputes.

Why bigvakil

1K Companies Per Month

We execute legal work for over 1000 companies and LLPs every month, by leveraging our tech capabilities, and the expertise of our team of legal professionals. Come on board and experience the ease and convenience!

Realistic Expectations

By handling all the paperwork, we ensure a seamless interactive process with the government. We provide clarity on the incorporation process to set realistic expectations.

300-Strong Team

With a team of over 300 experienced business advisors and legal professionals, you are just a phone call away from the best in legal services.

Documents required for Founders Agreement 

In India, Founders Agreement  cannot be done without proper identity and address proof. These documents will be needed for all the directors and the shareholders of the company to be incorporated. Listed below are the documents that are accepted by MCA for the online company registration process acceptable.

Identity And Address Proof

  • Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
  • Scanned copy of Voter’s ID/Passport/Driver’s License
  • Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
  • Scanned passport-sized photograph specimen signature (blank document with signature [directors only])

For the foreign nationals, an apostilled or notarized copy of the passport has to be submitted mandatorily. All documents submitted should be valid. The residence proof documents like the bank statement or the electricity bill must be less than 2 months old.

Registered Office Proof

For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, a recent copy of an electricity bill or the property tax receipt or water bill must be submitted. Along with the rental agreement, utility bill or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be submitted.

  • Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
  • Scanned copy of Notarized rental agreement in English
  • Scanned copy of No-objection certificate from the property owner
  • Scanned copy of sale deed/property deed in English (in case of owned property)

Note: Your registered office need not be a commercial space; it can be your residence too.

Benefits of a Founders Agreement

Determining the type of business entity:

The founders' agreement will clearly mention the nature and type of entity that should be established by the co-founders thereby setting the proper path to be followed.

Outlined business plans:

This agreement describes the vision and mission of the entity and sets the short term and long term goals to be achieved over a period of time.

Designating the roles and responsibilities:

Obviously, there will be overlapping roles and functions between co-founders without having a proper framework of the assigned roles. Therefore, it is important to designate the roles and responsibilities of the co-founders, in accordance with their area of mastery like marketing, operations, finance, etc.

Structure of ownership:

The founder's agreements will clearly specify the structure of ownership pertaining to the initial contribution made by the cofounder or the percentage of the equity shares held by the cofounder in case of a company, thereby avoiding any future conflicts in between them.

Decision making:

At a certain point in time, there will be an ideological conflict between co-founders, So these conflicts are to be handled through the proper decision-making process. Here the founders' agreement will formulate a procedure to be followed during the decision making process. If the voting system is adopted, then it should define the value of votes for each founder and provide a solution in case of a deadlock situation.

Compensation provisions:

This agreement laid down the scheme of compensation to be carried out, if anyone of the cofounder has violated the provisions mandated. Here, the proportion of the compensation to be made will be mentioned for every cofounder.

Expulsion of co-founders:

Any co-founder can be evicted from the company for indulging in fraudulent activities like misappropriation of funds, sexual harassment, and getting employed with other organisations. This agreement ensures a proper structure on how to deal with these situations and sorting out appropriate funds to be reverted to the expelled co-founder.

Confidentiality:

There was a separate clause on confidentiality in the founders' agreement, which makes an obligation for founders to not reveal the secrets of the business.

The procedure of drafting a founder’s agreement:

The procedure for drafting the founder’s agreement involves the following steps;

  • The draft of the founder's agreement is prepared by including all the required fields, like objectives of the company, terms, and, conditions to be followed by the co-founders.
  • Once the drafting process is complete, check if all mandatory provisions have been included, with no ambiguous clauses.
  • Add additional information that has to be furnished in the agreement, if required.
  • The final draft should be acknowledged by all the cofounders, that it has been scrutinised with acceptance of the aforementioned agreement.
  • Once all co-founders have agreed to the agreement, it should be notarized on a non-judicial stamp paper.
  • After notarizing, get the signature of all the co-founders on the agreement.
  • Before entering into the agreement, get expert guidance to avoid disputes.

Why bigvakil

1K Companies Per Month

We execute legal work for over 1000 companies and LLPs every month, by leveraging our tech capabilities, and the expertise of our team of legal professionals. Come on board and experience the ease and convenience!

Realistic Expectations

By handling all the paperwork, we ensure a seamless interactive process with the government. We provide clarity on the incorporation process to set realistic expectations.

300-Strong Team

With a team of over 300 experienced business advisors and legal professionals, you are just a phone call away from the best in legal services.

Documents required for Founders Agreement 

In India, Founders Agreement  cannot be done without proper identity and address proof. These documents will be needed for all the directors and the shareholders of the company to be incorporated. Listed below are the documents that are accepted by MCA for the online company registration process acceptable.

Identity And Address Proof

  • Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
  • Scanned copy of Voter’s ID/Passport/Driver’s License
  • Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
  • Scanned passport-sized photograph specimen signature (blank document with signature [directors only])

For the foreign nationals, an apostilled or notarized copy of the passport has to be submitted mandatorily. All documents submitted should be valid. The residence proof documents like the bank statement or the electricity bill must be less than 2 months old.

Registered Office Proof

For online company registration in India, the company must have a registered office in India. To prove admittance to the registered office, a recent copy of an electricity bill or the property tax receipt or water bill must be submitted. Along with the rental agreement, utility bill or the sale deed and a letter from the landlord with her/his consent to use the office as a registered office of the company should be submitted.

  • Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill
  • Scanned copy of Notarized rental agreement in English
  • Scanned copy of No-objection certificate from the property owner
  • Scanned copy of sale deed/property deed in English (in case of owned property)

Note: Your registered office need not be a commercial space; it can be your residence too.