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What is a Founder Agreement (FA)?


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When a startup company is born, it requires a set of rules among the founders / promoters of that company. "Founder Agreement" is a contract that is stipulated between the founders / promoters of a company on key issues relating to their company.

Why do we need it?

· Outline each other's understanding, responsibilities, rights and obligations towards the FA and align their goals.

· Keep a record that will prevent ambiguity in the future.

· supply the allocation and distribution of resources.

When to enter this agreement?

– At the time of overturning the idea;

– At the time of establishment;

– At the time of capitalization.

Standard terms and conditions of an FA

· fairness Investment and Shareholding Structure: Who should keep as many odds? fairness should be divided based on the contribution of each of the founders, respectively.

· Management and governance of the board of directors: How many founders are on the Council and why? How should the company be governed?

· Salary: Calculate the salts of the Founders and their increments.

· Roles and responsibilities: Divide roles and responsibilities in top management.

· Shareholders & # 39; assembly: Frequency of meetings, persons authorized in meetings.

· New issue and transfer of shares: Issues such as the Lock-in periods, the founder who sells his holdings, the Right of First Rejection, transfer after death, etc.

· Approval of debts: What will be the procedure to approve an action that could incur debts to the company?

· Appointment and removal of a managing director: It should be agreed on how the founder (s) will appoint and remove the managing director.

· maturity: The right of the company to repurchase its shares on certain quotas is mentioned.

· Confidentiality, non-competition and non-solicitation: A founder does not engage in any activity (espionage, breach of confidentiality) with any other entity that may endanger or be opposite to the interests of the company or compete directly with the company.

· Representation and guarantees: The founders are prevented from entering into contracts that limit their obligations to the company and, furthermore, prevent any third party's rights to the mental property of the founder / founders / company.

· Friendly exit from the trade: A strategy should be devised on how to exit the company.

· IP rights: mental property rights should be granted to the company and, in the case of partnerships, to all partners.

· Allowance: The founders indemnify investors for the loss caused by false statements or guarantees given to them.

· relevant law and dispute resolution: The FA should mention the laws to be followed and the dispute resolution process.

References of statutory law

Sec. 2 (h) of the Indian Contracts Act, 1872.

Important (i) and not (e)

· It should be a written agreement to remove ambiguity,

· It should be inserted at the time of incorporation of the company,

· Guarantee the legality of the contract and its right execution,

· Not foresee the separability of the clauses as not recognized by the Indian laws,

· The articles of the organization should contain the provisions of the FA.

· Above all, consultation of the lawyer is essential to draft the agreement in order to review the legal aspects.

By Rajesh Gole
Startup Advice and Strategy

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