Founder Agreements and Documentation
Paper your founder relationship. Here's what you need documented from day one.
Co-founder relationships end badly when things aren’t documented. You might trust each other completely right now, but memories fade, circumstances change, and what seemed obvious becomes contested. Getting founder agreements in place early isn’t about distrust—it’s about clarity. And it’s far easier to do when everyone’s excited than when there’s a dispute.
Why Documentation Matters
Preventing Disputes
Written agreements:
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Clarify expectations
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Record decisions
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Provide reference when memories differ
Enabling Fundraising
Investors require clean documentation:
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Clear equity ownership
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Proper IP assignment
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Vesting in place
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No loose ends
Messy documentation kills deals.
Protecting Everyone
When things change:
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Founder leaves
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Roles shift
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Company direction changes
Documentation provides framework for handling these.
Essential Founder Documents
Founder’s Agreement
The partnership terms between founders:
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Equity splits
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Vesting schedules
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Roles and responsibilities
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Decision-making authority
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What happens if someone leaves
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Dispute resolution
Stock Purchase Agreements
Formal equity issuance:
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Number of shares
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Price paid (usually nominal)
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Vesting terms
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Restrictions on transfer
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Repurchase rights
IP Assignment Agreement
Transfer all relevant IP to the company:
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Prior work related to the business
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Inventions and ideas
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Future work in this area
Ensures company owns the IP.
Confidentiality Agreement
Protect company information:
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What’s confidential
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Obligations to protect
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Duration
Non-Compete/Non-Solicit
Restrictions on competing or poaching:
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Scope limitations
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Time limitations
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Geographic limitations
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Enforceability varies by state
Key Terms to Define
Equity Split
How ownership is divided:
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Percentage or share counts
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Rationale for split
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Any adjustments planned
See Founder Equity Splits article for guidance.
Vesting
How equity is earned over time:
Standard terms:
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4-year vesting
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1-year cliff
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Monthly or quarterly after cliff
Acceleration:
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Single trigger (change of control)
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Double trigger (change of control + termination)
Cliff considerations:
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Protects against early departure
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Usually 25% at one year
Roles and Titles
Who does what:
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CEO, CTO, etc.
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Areas of responsibility
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Decision-making authority
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How roles might evolve
Decision-Making
How decisions are made:
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What requires unanimous consent
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What can one founder decide
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How to break ties
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Board composition
Departure Scenarios
What happens if a founder leaves:
Voluntary departure:
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Keeps vested equity
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Unvested returns to company
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Any special provisions
Termination for cause:
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Definition of cause
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Impact on equity
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Process for determination
Disability or death:
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How handled
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Insurance considerations
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Succession planning
Intellectual Property
Ensuring company owns what it needs:
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Prior IP assigned
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Future IP assigned
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Any carve-outs
Confidentiality
What must be kept confidential:
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Company information
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Customer information
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Technical details
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Business plans
Restrictive Covenants
Limits on competing:
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During involvement
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After departure
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Non-solicitation of employees
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Non-solicitation of customers
Dispute Resolution
How to handle disagreements:
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Mediation first
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Arbitration vs. litigation
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Governing law
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Venue
The 83(b) Election
What It Is
Tax election for restricted stock:
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Pay taxes now on current value
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Avoid paying taxes on future appreciation
Why It Matters
Without 83(b):
Stock vests → taxed on value at vesting → could be huge tax bill
With 83(b):
File within 30 days → taxed on value at grant → usually nominal
How to File
1.
Complete IRS Form 83(b)
2.
Mail to IRS within 30 days
3.
Keep proof of filing
4.
Attach to tax return
Critical Warning
30-day deadline is absolute. No extensions. No exceptions.
Set calendar reminder. File immediately. Track proof of mailing.
When to Document
Before You Start
Before writing code or talking to customers:
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Basic founder agreement
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IP assignment
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At minimum, email confirming equity split
At Incorporation
When you formally incorporate:
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Stock purchase agreements
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Full founder agreement
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83(b) elections
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Board consents
Before Raising
Before investors come in:
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Clean up any gaps
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Ensure all assignments complete
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Resolve any open questions
Ongoing
As things change:
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Document amendments
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Update as roles evolve
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Record significant decisions
Common Documentation Mistakes
Nothing in Writing
“We’ll figure it out as we go.”
Problem: Memories differ, disputes arise.
Fix: Paper it early, even informally.
Incomplete Vesting
Vesting for some founders, not others.
Problem: Unequal treatment, resentment.
Fix: All founder equity should vest.
Missing IP Assignment
Built things before incorporating or without assignment.
Problem: Unclear ownership, investor concerns.
Fix: Retroactive assignment, proper agreements going forward.
Missed 83(b)
Didn’t file or filed late.
Problem: Potential massive tax bill.
Fix: File immediately. No exceptions.
Unclear Departure Terms
Didn’t address what happens if someone leaves.
Problem: Dispute when it happens.
Fix: Define departure scenarios explicitly.
No Update Process
Original agreement, never updated.
Problem: Doesn’t reflect current reality.
Fix: Review and amend as needed.
Working with Lawyers
When to Involve Lawyers
Use lawyers for:
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Final documents
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Complex situations
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Significant capital at stake
DIY is okay for:
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Initial term sheet discussions
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Understanding what you need
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Simple email confirmations early on
Keeping Costs Down
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Agree on terms before engaging lawyers
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Use startup-focused firms/services
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Templates for standard provisions
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Lawyers for review, not drafting from scratch
Standard Documents
Sources for templates:
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YC’s SAFE and post-money templates
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Clerky’s standard documents
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Cooley GO
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Orrick Total Access
Key Takeaways
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Document founder relationships early—it’s easier when everyone’s excited
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Essential documents: founder agreement, stock purchase, IP assignment, confidentiality
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Vesting protects everyone: 4 years with 1-year cliff is standard
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Define what happens when founders leave (voluntary and involuntary)
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83(b) election must be filed within 30 days—no exceptions
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Decision-making authority should be explicit
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Update documents as things change; original agreement shouldn’t be frozen
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Clean documentation enables fundraising; messy documentation kills deals
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Use templates and services for standard situations; lawyers for complex ones
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When in doubt, write it down—verbal agreements lead to disputes
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