At the idea stage of a startup, enthusiasm often takes the place of written agreements. People develop the concept, write code, build the brand, join programmes and contribute unpaid work—assuming that ownership, roles and responsibilities can be settled later.
Two recent matters reminded us of the cost of that approach. In one, the departure and subsequent non-cooperation of a team member placed the venture’s participation in a funding programme at risk. In another, a lengthy informal collaboration resulted in serious disputes over founder status, equity, compensation for past work, and ownership of software and technical know-how shortly before incorporation.
The shared problem was not the absence of a company. It was the absence of an agreement.
A founders’ agreement should be signed at the idea stage and should address, at a minimum:
- each founder’s role, responsibilities and expected time commitment;
- equity allocation and vesting conditions;
- ownership and future assignment of code, data, branding and other intellectual property;
- decision-making and deadlock procedures;
- what happens when a founder leaves or stops contributing;
- handover, confidentiality and continuing cooperation obligations.
A founders’ agreement cannot prevent every disagreement. It can, however, ensure that when a relationship is tested, expectations have already been converted into clear and enforceable rules.
For startups, “we will sort it out later” is often the most expensive agreement of all.
