Founders’ Agreement: the 9 clauses that matter

Ask ten founders what is in their founders’ agreement and nine will say the equity split. The split is the least contested part: it was negotiated openly, everyone signed off, nobody forgets it. The disputes come from the questions nobody discussed.

The nine clauses

1. Vesting. Equity earned over time, typically four years. Without it, a founder who leaves in month six keeps their full stake forever.
2. The cliff. No equity vests before an initial period, usually a year. It protects everyone from a mis-hire at the founder level.
3. Good leaver, bad leaver. Leaving to care for a parent and leaving to join a competitor should not be treated the same, and the agreement should say so.
4. Buyback rights. When someone exits, the company or remaining founders can repurchase unvested or even vested shares at a defined price formula.
5. IP assignment. The prototype built on a personal laptop before incorporation belongs to the company only if a clause says it does.
6. Decision rights. Which choices need unanimity, which need majority, and who decides day to day. Vagueness here is the root of most operational fights.
7. Deadlock resolution. For 50-50 companies especially: mediation, a casting vote mechanism, or a buy-sell provision. Anything is better than paralysis.
8. Non-compete. Narrow, time-bound and geography-bound restraints have a chance of mattering; sweeping ones are ignored by courts and founders alike.
9. Dispute resolution. Arbitration seat, language and governing law, decided while everyone still likes each other.

When to sign it

Before the first investor, before the first key hire, and ideally before incorporation. The right time is when the terms feel almost unnecessary, because that is when they are cheapest to agree.