Co-Founders Agreement

Case Facts:

Three Clients being Promoters intend to set up a Company to develop Software-
as-a-Service (Saas) Product for streamlining project management for small and medium sized business. They are already in a stage of incorporating their
company called “Techsolutions” and want to legally document all the
formalities

Queries / Requirements from the Clients:

Query 1: The Purpose of drafting a Co-Founders Agreement?

My Opinion / Reply:

When two or more individual who are founders of a business and propose to
formerly set it up, they would do so by forming a Company and enter into an
Agreement amongst themselves with an intention that the said Agreement
would govern the relationship between the founders, their roles and
responsibilities with respect to the growth and operation of the company, in
accordance with terms and conditions set out in the Agreement.

Query 2: What are the three major aspects of the Founders’ relationship that
must be formally documented in the agreement especially in the context of a
startup?

My Opinion / Reply:

Three major facets of Founders’ relationship that must be formally
documented in the agreement particularly in case of a startup:

• Initial Capital i.e. the initial non-refundable amount towards expected and potential Company expense that founders would contribute and additional capital contribution towards to support ongoing operating
  expense of the company till such time Company is generating adequate
  positive accrual. This contribution should be through mutual written
  consent of all the founders.
• Ownership Structure i.e. determining the ratio in which shares of the
  Company will be divided amongst the founders, which is the initial
  proportionate ownership of the Company and these shares should not be
  transferred nor should be considered as securities of any kind.
• Voting i.e. there could be any business matter, which requires majority
  vote in order to proceed. This voting should be aligned to the ratio of
  shareholding between the founder members. It is assumed that entire
  holding is with founder members.

Query 3: Five most important clauses of Co-Founders Agreement.

My Opinion / Reply:

Five major clauses of Co-Founder’s Agreement:

1. Capital & Shareholding in the Company
2. Vesting of founders shares and determining the vesting period. If the founder leaves, provision for the Company to buyback the shares of exiting founder or provision related to the remaining founder/s buying off those shares at face value and buying the unvested shares.
3. Esop’s
4. Shareholders Loan
5. Role & Responsibility of Founders