Founders Agreement Template: Clause-by-Clause Checklist

What is a founders agreement?

A founders agreement, also called a cofounder agreement, is a written contract between the people starting a company. It records each founder's role, equity, vesting schedule, IP assignment, time commitment, how decisions are made, and what happens if someone leaves. Agree it before you build anything valuable together, while everyone still gets along.

The point is to settle the hard questions in advance. A Stanford abstract of Harvard Business School professor Noam Wasserman's 2012 talk summarises his finding that while some high-potential startups fail on product or market fit, "the vast majority meet their end due to people problems." If the founders fall out later, the outcome was already agreed while nobody was angry.

When to sign a cofounder agreement

Sign it before you incorporate, raise money or write much code together. The longer you wait, the more there is to argue about, from who wrote which part of the code to whose name the domain is registered in. If you have already started, sign now and make the IP assignment cover work done so far.

Some founders pair the agreement with a short trial. One Hacker News commenter who had used YC's matching several times suggested a "temporary 3 day trial" of building together, backed by "standard co-founder legal paperwork" so each team does not negotiate a custom deal from scratch. This checklist gets you to that paperwork faster.

Roles and responsibilities

Write down the outcomes each founder owns as well as their title. A title such as "CEO" leaves most of that open, while "owns fundraising, hiring and the budget" settles it.

• Each founder's title and the areas they own, such as product, engineering, sales, operations or finance.
• Who has the final say within each area, and which decisions need all founders.
• When roles get reviewed, for example at each funding round or every 12 months.
• What happens if the company outgrows a role, such as hiring an executive above a founder.

Equity ownership

State each founder's percentage, the class of shares, and what each founder pays or contributes for them. In his essay on splitting equity, Y Combinator's Michael Seibel recommends "equal (or close to equal) equity splits among co-founders". If you have not settled the numbers, read our cofounder equity split guide or try the equity split calculator.

• The percentage each founder holds and the total number of shares issued.
• The price paid per share, or the assets (code, IP, cash) contributed in exchange.
• Whether an option pool for future hires is set aside now, and how large it is.
• How cash put in by a founder is treated: as extra shares, a loan, or an investment on the same terms as outside investors.

Vesting schedule and acceleration

Vesting means founders earn their shares over time, so someone who leaves early does not keep a large stake for work they will not do. The typical setup, in YC's words, is "four years of vesting with a one year 'cliff'": nothing vests in the first year, 25% vests at the one-year mark, then 1/48 of the total vests each month. Our founder vesting schedule guide has the details.

• Total vesting period and cliff length.
• Vesting start date, which can credit work done before incorporation.
• Monthly or quarterly vesting after the cliff.
• Acceleration if the company is sold: none, single trigger or double trigger, and how much.
• The company's right to buy back unvested shares when a founder leaves, and at what price.

In the US, founders who receive shares subject to vesting should read about the 83(b) election. The IRS says it "must be filed no later than 30 days after the date the property was transferred."

IP assignment

Every founder assigns to the company the intellectual property related to the business: code, designs, brand, domain names, content and customer lists, including anything created before incorporation. Investors check this in due diligence, and a missing assignment from a founder who has left is hard to fix once they are gone.

• Assignment of all past and future work related to the business.
• A list of prior inventions or side projects each founder keeps.
• Company ownership of the domain, code repositories, social accounts and app-store accounts.
• Confidentiality of company information during and after each founder's involvement.

Decision-making and deadlocks

Decide which decisions one founder can make alone, which need a majority, and which need everyone. Two founders on 50/50 need a deadlock rule, because every vote can tie.

• Day-to-day decisions: made by the founder who owns that area.
• Reserved decisions that need all founders: raising money, issuing shares, borrowing above an agreed amount, selling the company, and adding or removing a founder.
• Board seats. Seibel suggests it can help for "only the CEO to hold a board seat before a significant equity fundraise," to prevent board disputes.
• A deadlock process, for example a cooling-off period, then a named adviser, then mediation.

Time commitment, pay and outside work

Mismatched commitment breeds resentment quickly. In YC's 2021 co-founder matching data, "79% of founders care that their co-founder can commit a certain number of hours over the next few weeks."

• Expected hours per week now, and the date each founder goes full-time.
• What counts as a conflict: other jobs, consulting or other startups.
• Founder salaries or deferred pay, and who approves changes.
• Spending limits each founder can approve alone.
• What happens if a founder misses the agreed full-time date.

Departures: good leaver and bad leaver

This clause decides what a departing founder keeps. Leave it out and that gets negotiated during the departure itself, when neither side is calm. "Good leaver" and "bad leaver" are terms from UK-style shareholder agreements; US documents usually reach a similar result through vesting and the company's right to repurchase unvested shares.

• Definitions: a good leaver might leave through illness or by agreement; a bad leaver might be dismissed for serious misconduct or breach the agreement.
• What each keeps: good leavers usually keep vested shares; bad-leaver terms may let the company buy back even vested shares at a lower price. Whether harsh terms are enforceable depends on local law, so this clause especially needs a lawyer.
• The buyback price for unvested shares, often the price originally paid.
• Handover duties: code, credentials, documents and customer relationships.
• Non-solicitation of staff and customers, within what local law allows.

Disputes and changes

• An escalation path: direct conversation, then a named adviser, then mediation, then arbitration or court.
• Governing law and where disputes are heard.
• How the agreement can be amended: in writing, signed by all founders.
• What happens when you raise a priced round, since investor documents often replace parts of a founders agreement.

A one-page outline to fill in

Say two founders, A and B, are starting a software company. The right-hand column shows how their answers might look. The values are illustrative, not recommendations.

How to use this template

1. Each founder fills in the outline alone first.
2. Compare answers and use the differences as your agenda.
3. Agree every line in plain language and both sign a one-page summary of terms.
4. Take the summary to a startup lawyer where you will incorporate, and have them draft the binding documents.
5. If you are US taxpayers receiving shares that vest, put the 30-day 83(b) deadline in your calendar from the date the shares are transferred.
6. Revisit the agreement at each funding round or when a role changes.

If you are still looking for someone to sign it with, BiggMate is a cofounder-matching platform in early access; signing up is free.

Frequently asked questions