Founders Agreement for Startups

What is a Founders Agreement?

A founders agreement template is a standard legal document used by founders and business partners to discuss the potential of launching a startup project together. This is a non-binding document between parties that clarifies the purpose of cooperation, goals and mutual parties’ expectations from the cooperation. In Australia, a founders’ agreement for a startup serves as a solid legal foundation before registering a business officially.

This founder agreement template can be used for various industries and projects across all Australian states and territories. Australian investors, founders and business partners seek to enter a co-founder agreement before any cooperation starts:

• to clearly outline goals and purposes of cooperation;
• to form the startup’s equity and financial foundation; and
• to define each party’s rights and obligations.

What shall this founders agreement template include?

A founder agreement template is a flexible contract that is governed by the general principles of Australian contract law, which gives founders contractual freedom. A standard founders agreement shall include the following:

Description of Project

This is a pretty vast section of the co-founder agreement sample where founders have to describe the following:

• the name of the project;
• its short description;
• goals, mission or final deliverables of the project.

Contributions & Equity

Each party to a founder agreement template is supposed to contribute money, services or goods to the project’s equity. In other words, every party is supposed to give something in exchange for being able to participate in the project. Contributions may have different forms:

• cash (Australian dollars only);
• provision of services (accounting, legal, and IT development);
• provision of goods or machinery equipment.

In exchange for the provided contribution, each founder receives a fixed interest in the project’s equity, which is a pool of all the project’s assets, liabilities, profits, etc.

For example, if John has 5 % of a startup’s equity, it means that in case of a profit distribution, John gets 5 %.

Confidentiality

As all founders are exposed to sensitive commercial or business information of each other, they may want to protect it. Therefore, inclusion of a confidentiality clause in the text of a founders agreement template helps to protect such information.

It is also possible to sign a separate confidentiality agreement to ensure a stronger level of protection of sensitive information involved. If such a document is being signed, in that case it is being used in conjunction with this founders agreement.

Intellectual Property Rights

In the course of cooperation between the founders, certain intellectual property rights can be created. These rights may include inventions, improvements, designs, software, trademarks, copyrights, or other proprietary rights. The text of the document must clearly outline to whom such proprietary rights shall belong.

If either party wishes to license usage of certain trademarks, know-how, software or other IP to another party to this agreement, a separate licensing agreement must be used in addition to the present document.

Vesting Schedule

A vesting schedule, also known as a vesting mechanism, is a legal clause that defines how founders are supposed to earn shares of the company startup within the time by continuing to work for it. It is designed to protect the company if someone leaves early by ensuring equity is earned gradually through continued involvement.

For example, Party A and Party B are the founders of the new startup. They agree that the first 25 % of all shares should be given to them on the last day of the company’s first anniversary, while the remaining portion of 75 % of shares should be vested in equal instalments for the next 5 years.

Key Legal Consideration for a Solid Founders’ Agreement Template in Australia

A solid and professionally drafted co-founder agreement template must always address three key aspects mentioned below.

Split of Equity

This section of the founders agreement usually addresses how the profits generated by the startup should be divided between the founders. The standard clause usually provides distribution of profits in proportion to each founder’s share in equity. However, there are also other ways to do it:

• in equal shares despite being all founders;
• in shares other than the amount of each founder’s interest in the equity;
• certain percentage of profit in equal shares, while the remaining part is in proportion to each founder’s interest in the equity, etc.

Exit Strategy

From the very start each founder should understand the exit strategy from the startup, including financial and legal consequences. This includes the notification process of other founders and the pay-off of the part of their equity upon the exit and evaluation and pay-off of any accrued profits, if available.

Stakes are high, and failure to address this properly in the co-founder agreement template may result in disputes in the future.

Limitation of Competition

All startups are usually at risk, as your ideas can be easily taken away by other founders if not protected properly. Therefore, a co-founder agreement startup template shall address the following:

• If founders can participate in other similar projects;
• In case of an applicable limitation, what is the limitation period?
• In case of applicable limitations, what is the geography of these limitations (for example, throughout the country or in a specific state)?

How to customise a co-founder agreement template with FasterDraft?

To get a fully customisable document template, follow a few easy steps below:

1. Click the “Create Document” button.
2. Answer simple questions in the form.
3. Select a template’s format – co-founder agreement PDF or Word.
4. Make a payment.

The document is ready for instant download immediately after the purchase.