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Essentials of a Good Startup Co-founders Agreement

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Essentials of a Good Startup Co-founders Agreement:

Writing on such a topic initially may sound un-justifiable. Essentials of a Good Startup Co-founders agreement. Of course, founders of any start-up have a mutual trust on each other, as each person holds specific responsibilities like product development, marketing, financing, accounting etc., each person has a fixed stake(trust me in certain cases even the stakes are not fixed).

Initially every co-founder will have the same thoughts. But as time progresses things start to change whether the startup is a success or a failure. To avoid problems later one needs to be practical and it may sounds harsh in the beginning but do have a Co-founder’s agreement. You can live edit your co-founder’s agreement here without any obligations. The site has many other legal documents templates for startups.

Hopefully justifying the necessity of having a co-founder’s agreement, I will proceed to discuss a few important essentials regarding a good Co-founder’s agreement.

Name of the Project

Every Co-founder agreement needs to be for a specific project(s). The name of the project needs to be mentioned upfront for clarity on the scope of Agreement.

Date of Commencement

 This clause does not require any explanation. We all know the importance of having dates in any of our legal agreements.

Description of project and Business Concept

As per my understanding this is one of the most important clauses of Co-founder’s agreement. The description of the project needs to be mentioned very clearly and effectively. Many people annex the description of their projects separately in order to include all technical information of the startup.

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It makes sense to include all the information about the concept of your startup right in the beginning in the co-founders agreement. When a person starts working on one project he/she may get other similar or different ideas. A confusion regarding the same may lead to conflicts later on. Lot said!

Cessation of the Project

Some projects are time bound while others are circumstances. For instance, a startup may want to register a private limited company when its annual revenue crosses Rs. 1,00,000/- in that case the business of the startup is taken up by the Private Limited Company.

Transfer of Ownership to Company upon formation

As a startup grows it will require more corporate structure. The terms for ownership of shares in the to be formed company need to be clear upfront to avoid problems later.

Further, the ownership of business concept, trademarks & technology also need to be transferred to the newly formed company.

Owner structure at the inception / formation

Initial structure of ownership is yet another important clause of a Co-founders agreement. Some co-founders become technical partners while others become investing, some do marketing and others accounting. As the functions differ so should the ownership. Startups initial phases work like this.

Confidentiality

We talked about trust between the Co-founder’s in the beginning. Here is the clause that strengthens the argument. Keeping the concept and working of a startup is vital for its success. Harsh words but, Copying of a concept does not take time. There are people who do not have cash crunch like most of the startups do.

Dispute Resolution and Legal Jurisdiction

Each of us likes to see his / her startup work avoiding hassles of unnecessary disputes. Preparing for the worse, just in case a dispute happens. Then the state of jurisdiction of courts and mediators needs to be designated for example Delhi, Mumbai etc.

Representations and Warranties

Each founder needs to declare his association in any other related startup. The reason is obvious. He should not be restricted from his obligation in the startup and no third party can claim any intellectual property possessed by the Co-founders in the startup.

Explaining the clauses of any legal agreement is difficult as any legal agreement involves many technical clauses which require prior legal knowledge. I hope I have made it simple enough so that the co-founders can understand and implement the same in their businesses. Awaiting your responses and comments, till then take care and Good luck!

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