Start Your Business on the Right Foot:
Sign a Founders’ Agreement
When establishing a new start-up business, it’s easy to get caught up in the excitement. You and your trusted friends have come up with an innovative good or service, and you’re collectively pushing forward to get it to market as quickly as possible so you can generate revenue.
Yet, this is a critical time to lay the groundwork for your future mutual profit: goodwill and trust are not enough to ensure future security.
There are many issues that need to be considered and formally agreed upon between you and your co-founders to ensure that key governance and financial matters are clearly delineated. Aviv Lazar & Co is fully equipped to guide you through this process and produce a bespoke Founders Agreement, uniquely tailored to you, your associates, and your business’ specific circumstances. There are a number of key areas that will need to be determined:
1. Financial Issues
From the outset, you must determine who owns the company and receives a share of payment on sale and in what proportions. Who may share in the profits of the business? Are any of the founders to be salaried? The only way to guarantee the outcome of these potential sources of discrepancy is through recourse to a Founders Agreement.
2. Governance Issues
Governance issues should also be taken seriously at this early stage. Who among the founders will be permitted to determine the future of the company (when the company should be sold, for example)? A CEO on behalf of all? A Board of Directors? A single vote for each of the founders? All of these issues need to be clearly laid out in a Founders Agreement and decided before any issues may arise. What if any disputes between the parties arise? A Founders Agreement can detail how they should be settled ahead of time.
3. Intellectual Property Issues
It is likely that a considerable amount of your company’s future value will be in its Intellectual Property. Similar to the Governance Issues detailed above, you must determine who the owner of the IP rights will be, and who will have the right to determine if and when they should be sold or licensed to third parties.
4. Repurchase Rights
To ensure that your company can buy back shares of stock previously issued to a founder or other shareholder, a repurchasing clause is crucial to include in a Founders Agreement. This clause is arguably the most vital in a Founders Agreement as it allows a company to manage its ownership structure. This is the case as it enables companies to buy back shares from the founder or a shareholder if they leave the company or sell their shares to a third party which can also help maintain the company's value. This can also protect the company if a shareholder or founder sells their shares to an unsuitable third-party buyer. Further, this clause can grant clarity and transparency for the company as it outlines the terms and conditions for the company to be able to buy back company shares. Additionally, it can incentivize founders to stay at a company for a specific period or until they achieve specific milestones within the company.
Here at Aviv Lazar & Co we are passionate about providing quality legal care to all of our clients. We dedicate ourselves to crafting the most appropriate formulations for your complex business needs. Contact us today to discuss your needs in greater depth.