A co-founder agreement eliminates the possibilities of misunderstandings and conflict later on. It comes up with unambiguous regulations while everybody is still on the same page. There is no need for this document to be over-loaded with legal terms but it needs to be comprehensible, equitable, and documented. The following points represent the major concerns of the startups in the initial stage.
Ownership and Equity Split
Announce in clear terms who has what part of the company. Give reasons for the division based on the activities, time, and risk. Putting this in writing at the beginning prevents misunderstandings and has no feelings of resentment in the future.
Roles and Responsibilities
Tell which co-founder is responsible for which area in the day-to-day operations. Having defined roles minimizes the risk of overlap and disputes. Not only does this speed up the decision-making process but it also keeps the distribution of accountability fair.
Decision-Making Process
Outline the method of making important decisions. Decide the cases when votes are to be held, and who will have the final word. Set rules that are specific to help in averting situations that are stuck and long arguments.
Vesting Schedule
Vesting refers to the process by which the founders gradually acquire equity in the enterprise. This is a safety measure for the company in case a person quits early. It is also a way of making a long-term commitment for the whole team involved.
After Founder Leaves
Anticipate founder departures at an early stage. Discuss the consequences of someone leaving whether on their own accord or forced. This ensures fairness and gives the venture some protection.
Salary and Compensation
Indicate whether the founders will draw salaries and if so, when. Startups are often reluctant to pay salaries. Committing this to paper helps reduce tensions and clarify the expectations.
Time Commitment Expectations
Make it clear how much time each of the founders is supposed to be working. Full-time or part-time makes a difference. Having clear expectations would help in maintaining a balanced effort.
Conflict Resolution Plan
It is important to create a conflict resolution plan and regulation in advance. Introduce a simple method for conflict resolution, like dialogue, mediation, or consultation with a third party. This prevents issues from getting worse.
