Founders' Agreement
Parties
This agreement is dated the date on which it is signed by the last of the parties.
This agreement is made between [Founder 1 legal name and details] ("Founder 1") and [Founder 2 legal name and details] ("Founder 2"), each a "Founder" and together the "Founders".
Key Terms
"Company" means [Company].
"Business" means [Business to be carried on by the Company].
"Founder Roles" means [Each Founder's title, role and responsibilities].
"Time Commitment" means substantially all of the Founder's working time and attention.
"Equity Split" means [Equity split: number or percentage of Founder Shares for each Founder].
"Subscription Price" means [Subscription price per Founder Share] per Founder Share.
"Vesting Start Date" means [Vesting start date].
"Vesting Period" means the period of 48 months starting on the Vesting Start Date.
"Cliff Period" means the period of 12 months starting on the Vesting Start Date.
"Vesting Interval" means each successive period of one month after the end of the Cliff Period.
"Acceleration Percentage" means [Percentage of unvested shares that accelerate].
"Acceleration Window" means the period of 12 months after completion of a Change of Control.
"Minimum Commitment Period" means the period of [Minimum commitment period (early resignation makes a Bad Leaver)] starting on the Vesting Start Date.
"Leaver Option Period" means the period of three months after the Leaving Date.
"Reserved Matters" means issuing or granting rights over any shares or other securities of the Company; admitting a new founder; changing the Equity Split; changing the Company's constitutional documents; selling the Company or all or a material part of its business or assets; borrowing money or giving security outside the ordinary course of business; entering into any agreement with a Founder or a person connected with a Founder; materially changing the nature of the Business; and starting the winding up of the Company.
"Initial Contributions" means [Initial contributions of cash or assets by each Founder].
"Excluded IP" means [Intellectual property each Founder keeps (Excluded IP)].
"Restricted Period" means the period of [Restricted period after a Founder leaves] after a Founder's Leaving Date.
"Restricted Area" means [Restricted area for the non-compete].
"Drag Threshold" means Founders together holding at least [Drag-along threshold (percentage of Founder Shares)] of the Founder Shares then in issue.
"Governing Law" means the law of [Governing law].
"Forum" means [Forum: city and state for proceedings].
"Arbitration Institution" means [Arbitration institution].
Definitions and Interpretation
"Board" means the board of directors of the Company.
"Business Day" means a day other than a Saturday, Sunday or U.S. federal holiday.
"Founder Shares" means the shares of the Company's common stock issued or to be issued to the Founders in accordance with the Equity Split, together with any shares derived from them by stock dividend, stock split, reverse stock split, recapitalization, merger or exchange.
"Vested Shares" means the Founder Shares that have vested under the Vesting clause or the Acceleration clause, and "Unvested Shares" means all other Founder Shares.
A Founder becomes a "Leaver" on the date on which that Founder ceases to be a director, officer, employee or consultant of the Company or any of its subsidiaries and does not continue in any of those capacities (the "Leaving Date").
A "Good Leaver" is a Leaver who is not a Bad Leaver, including a Leaver who leaves because of death or permanent incapacity, or because the Company ends the Leaver's engagement other than for Cause.
A "Bad Leaver" is a Leaver whose engagement the Company ends for Cause, or who resigns voluntarily before the end of the Minimum Commitment Period, other than because of death or permanent incapacity.
"Cause" means a Founder's fraud or dishonesty in relation to the Company; conviction of, or plea of guilty or no contest to, a felony or a crime involving fraud or dishonesty; gross misconduct; or material or persistent breach of this agreement, or of the Founder's engagement terms with the Company, that is not remedied within 20 Business Days after written notice from the Board requiring remedy.
"Fair Value" means the price per share agreed between the Leaver and the Board (acting without the Leaver) or, failing agreement within 20 Business Days after the Leaving Date, the price the Valuer certifies as the price a willing buyer would pay a willing seller for the relevant shares on the Leaving Date, valuing them as a proportion of all of the Company's outstanding capital stock on a fully diluted basis without any premium or discount for the size of the holding or the restrictions on transfer.
"Valuer" means an independent firm of accountants of recognized standing, other than the Company's auditors, chosen by the Leaver from three such firms proposed by the Board or, if the Leaver does not choose within 10 Business Days, chosen by the Board from them. The Valuer acts as an expert and not as an arbitrator, its determination is final and binding except for manifest error, and the Company bears its fees unless the Valuer decides otherwise.
"Change of Control" means a merger, consolidation or similar transaction after which the stockholders of the Company immediately before it hold less than a majority of the voting power of the surviving or acquiring entity; the acquisition by any person, alone or with persons acting together, of stock carrying more than 50 percent of the voting power of the Company; or the sale, lease or exclusive license of all or substantially all of the Company's assets, in each case other than an internal reorganization that does not change the ultimate ownership of the Company.
"Listing" means the closing of the Company's first underwritten public offering of its common stock under an effective registration statement, or the direct listing of its common stock on a national securities exchange.
"Intellectual Property Rights" means patents, rights to inventions, copyright and related rights, moral rights, trade marks, business names and domain names, rights in get-up and goodwill, rights in designs, database rights, rights in computer software, rights in confidential information (including know-how and trade secrets) and all other intellectual property rights, in each case whether registered or unregistered, including applications for them, and all similar or equivalent rights anywhere in the world.
"Business IP" means all Intellectual Property Rights in any invention, software, design, work, data, know-how, name or other material that a Founder, alone or with others, has created, developed or acquired for the Business or the Company, whether before or after the date of this agreement, or creates in the course of the Founder's engagement with the Company, but excluding the Excluded IP (if any).
"Confidential Information" means all information, in any form, relating to the Business, the Company, its customers, suppliers, investors, finances, products, technology or plans, or the Business IP, that is not publicly available, including the terms of this agreement.
In this agreement, a reference to a clause by its heading is to the clause of this agreement with that heading; the words "including" and "include" do not limit the words before them; the singular includes the plural; and where a party is an individual, "it" and "its" include "he", "she", "him", "her" and "his".
The Company
The Founders agree to carry on the Business through the Company and to cooperate in good faith to develop it.
If the Company has not been incorporated at the date of this agreement, the Founders shall procure, as soon as reasonably practicable, its incorporation as a corporation under the law of the state the Founders agree in writing, with the Company's certificate of incorporation and bylaws consistent with this agreement, and shall share equally the reasonable costs of incorporation until the Company can reimburse them.
The Founders shall procure that the Company issues the Founder Shares to the Founders in accordance with the Equity Split at the Subscription Price per share, and each Founder shall subscribe and pay for its Founder Shares under a stock purchase agreement in a form approved by the Board that is consistent with this agreement and gives the Company the repurchase right described in the Leavers clause.
Each Founder shall procure that the Company, promptly after the later of its incorporation and the date of this agreement, signs a joinder to this agreement under which it accepts the rights and obligations this agreement gives the Company.
Each Founder shall make the Initial Contributions attributed to it, on the terms set out in the Initial Contributions.
No Founder is obliged to make any further contribution to, lend money to, or guarantee any obligation of, the Company unless it agrees in writing.
A new founder may be admitted only with the prior written consent of all the Founders and on signing a written accession to this agreement, after which that person is a Founder for all purposes of this agreement.
The Equity Split may be changed only by written agreement of all the Founders. A later issue of shares to employees, advisers or investors that is approved under this agreement dilutes the Founders in proportion to their holdings unless they agree otherwise in writing.
Roles and Responsibilities
Each Founder shall perform the role and responsibilities set out for that Founder in the Founder Roles and shall devote the Time Commitment to the Business.
The Founders may change the Founder Roles by written agreement between all of them.
Each Founder shall act in good faith towards the other Founders and the Company, shall promptly disclose to the other Founders any actual or potential conflict between its own interests and those of the Company, and shall not carry on any other business that competes with the Business or materially interferes with the Time Commitment without the prior written consent of the other Founders.
Each Founder shall, if the Board requests, enter into an employment agreement, offer letter or consulting agreement, together with the Company's standard confidential information and invention assignment agreement, with the Company on terms approved by the Board that are consistent with this agreement.
No Founder is entitled to a salary or fee from the Company until the Board, with the approval of all the Founders, decides that the Company can pay it. The Company shall reimburse each Founder's reasonable expenses properly incurred for the Business and approved in advance by the Board.
Vesting
Each Founder's Founder Shares are Unvested Shares when issued and vest only in accordance with this clause and the Acceleration clause, counting time from the Vesting Start Date.
No Founder Shares vest before the end of the Cliff Period. At the end of the Cliff Period, a proportion of each Founder's Founder Shares equal to the length of the Cliff Period divided by the length of the Vesting Period vests.
After the end of the Cliff Period, each Founder's remaining Unvested Shares vest in equal instalments at the end of each Vesting Interval, so that all of that Founder's Founder Shares have vested at the end of the Vesting Period.
Vesting continues only while the Founder has not become a Leaver. No Founder Shares vest after the Leaving Date except under the Acceleration clause.
Until it is transferred under the Leavers clause, an Unvested Share carries the same voting, dividend and other rights as a Vested Share.
Where a vesting calculation produces a fraction of a share, the number of Vested Shares is rounded down to the nearest whole share and the fraction is carried forward to the next vesting date. On the final scheduled vesting date, all remaining shares in the award vest, including any carried rounding difference, provided the service condition has been satisfied.
Acceleration
If, within the Acceleration Window, a Founder's engagement with the Company or its successor is ended other than for Cause, or the Founder resigns within 60 days after a material reduction in the Founder's role, responsibilities or remuneration made without the Founder's consent, the Acceleration Percentage of that Founder's Unvested Shares vests immediately before the Leaving Date.
Unless the Founders agree otherwise in writing with the buyer in a Change of Control or, before a Listing, with the Company, the Vesting clause, the Acceleration clause and the Leavers clause continue to apply after completion of a Change of Control or a Listing to each Founder's Unvested Shares, and to any shares, securities or other property received for them as if those were Unvested Shares, until they vest or are transferred under the Leavers clause. For that purpose, a reference in those clauses, or in the definitions they use, to the Company or to engagement with the Company includes its successor and the buyer and their subsidiaries, and the rights given to the Company and the Board under the Leavers clause may be exercised by the Company or its successor. On a Listing, those clauses apply subject to the law and the rules of the relevant securities exchange, and a Listing does not by itself accelerate vesting.
Leavers
When a Founder becomes a Leaver, the Board (acting without the Leaver) may, by written notice to the Leaver given within the Leaver Option Period, require the Leaver to transfer all or any of the Leaver's shares that are subject to transfer under this clause to one or more of the Company (to the extent it may lawfully repurchase its own stock), the other Founders in proportion to their holdings of Founder Shares, and any other person the Board nominates, at the price this clause sets.
The price for each Unvested Share is the lower of the Subscription Price and Fair Value. The price for each Vested Share of a Bad Leaver is the lower of the Subscription Price and Fair Value. A Good Leaver keeps its Vested Shares, which are not subject to transfer under this clause.
The Leaver shall transfer the relevant shares with full title and free from any encumbrance within 10 Business Days after the notice, or after Fair Value is determined if later, against payment of the price in cash, and shall deliver to the Company any stock certificate and signed stock power, and any other document reasonably required to record the transfer.
To secure the Leaver's obligations under the Leavers clause, each Founder irrevocably appoints the Company, acting through any officer other than that Founder, as its attorney-in-fact to sign any stock power or other document and do anything needed to complete a transfer the Leavers clause requires, if the Founder does not do so on time. This power is coupled with an interest.
A Leaver who is also a director shall not take part in any decision under this clause, and the Leaver's shares do not count in any vote of the Founders under this clause.
Intellectual Property
Each Founder hereby assigns, and agrees to assign, to the Company all of its right, title and interest in the Business IP, including by way of present assignment of future rights, for all purposes throughout the world and for the full term of protection.
Until the Company is incorporated, each Founder shall hold the Business IP for the joint benefit of the Founders, shall not license, transfer or encumber it, and shall assign it to the Company by a written assignment within 10 Business Days after incorporation.
Each Founder shall promptly disclose to the Company all Business IP it creates and, at the Company's request and expense, shall sign all documents and do all things reasonably required to vest, register, maintain and defend the Business IP in the Company's name, both during and after the Founder's engagement.
To the extent permitted by law, each Founder waives, and agrees not to assert against the Company or its licensees, any moral rights in the Business IP.
The Excluded IP is not assigned under this clause. If any Excluded IP is incorporated into a product, service or process of the Business, its owner grants the Company a non-exclusive, perpetual, irrevocable, worldwide, royalty-free license, with the right to sublicense, to use and exploit that Excluded IP as part of the Business.
The assignments in this clause are made in consideration of the mutual obligations in this agreement and the issue of the Founder Shares, and no further payment is due to a Founder for them.
This clause does not apply to an invention that qualifies fully for protection from assignment under California Labor Code section 2870 or any similar state law, and each Founder acknowledges that it has been notified of that limitation.
Confidentiality
Each Founder shall keep the Confidential Information confidential, shall use it only for the Business, and shall not disclose it to any person except as this clause permits.
A Founder may disclose Confidential Information to the Company's directors, employees, professional advisers and prospective investors or acquirers who need to know it for the Business and are bound by duties of confidentiality; with the prior written consent of the Board; or to the extent required by law, a court or a regulator, after giving the Company prior notice where lawful.
This clause does not apply to information, other than Business IP, that is or becomes public other than through a breach of this agreement, or that a Founder can show was lawfully in its possession free of any duty of confidence before it was disclosed in connection with the Business.
On becoming a Leaver, a Founder shall return to the Company or destroy all documents and materials containing Confidential Information and delete it from its devices, except where the law requires it to keep a copy.
Nothing in this agreement prevents a Founder from reporting a possible violation of law to a government agency or making any other disclosure the law protects. Under 18 U.S.C. section 1833(b), an individual is not liable under any federal or state trade secret law for disclosing a trade secret in confidence to a government official or an attorney solely to report or investigate a suspected violation of law, or in a complaint or other document filed under seal in a lawsuit or other proceeding.
Management and Decisions
The Business shall be managed by the Board. Each Founder who is a director shall act in accordance with its duties as such, and nothing in this agreement requires a director to act in breach of those duties.
While a Founder holds Founder Shares and has not become a Leaver, the other Founders shall exercise their votes to appoint and keep that Founder as a director of the Company. A Founder who ceases to be an employee or consultant of the Company shall resign as a director if the Board requests.
The Founders shall procure that the Company does not do any of the Reserved Matters without the prior written consent of all the Founders.
Each Founder shall exercise its voting rights as a stockholder of the Company, and do all other things within its power, to give effect to this agreement.
Deadlock
A "Deadlock" arises where a Reserved Matter, or a matter put to the Board, is proposed and not approved at two consecutive meetings or written resolutions at least 10 Business Days apart, and any Founder gives the others written notice that it considers the matter to be a Deadlock.
The Founders shall meet within 10 Business Days after a Deadlock notice and try in good faith to resolve the Deadlock. If it is not resolved within 20 Business Days after the notice, any Founder may refer it to mediation under the Governing Law and Disputes clause. Until the Deadlock is resolved, the matter is treated as not approved and the Company continues to operate in the ordinary course.
Transfers of Shares
No Founder may transfer, charge or otherwise dispose of any Founder Shares, or any interest in them, except in accordance with this agreement and the Company's certificate of incorporation and bylaws.
No Founder may transfer any Unvested Shares except under the Leavers clause, as a Permitted Transfer, under the Deadlock clause or on a sale under the tag-along or drag-along provisions of this clause. Shares transferred under the Deadlock clause cease to be subject to vesting on completion of that transfer, and any shares, securities or other property received for Unvested Shares on a tag-along or drag-along sale remain subject to the Vesting, Acceleration and Leavers clauses as if they were Unvested Shares.
A Founder who wishes to transfer any Vested Shares (the "Seller") shall first offer them in writing to the other Founders at the price and on the terms it proposes. The other Founders may accept the offer, in proportion to their holdings of Founder Shares or as they otherwise agree, within 20 Business Days after receiving it.
If the other Founders do not accept the offer for all the offered shares, the Seller may, within 60 Business Days after the offer period ends, transfer the shares not accepted to a third party at a price no lower, and on terms no more favorable to the buyer, than those in the offer, if the buyer first agrees in writing to be bound by this agreement.
A Founder may transfer Founder Shares to the trustees of a trust for the benefit of the Founder or the Founder's family, or to a company wholly owned by the Founder (a "Permitted Transfer"), if the transferee first agrees in writing to be bound by this agreement and to transfer the shares back to the Founder if it ceases to qualify. Founder Shares transferred in a Permitted Transfer remain subject to the Vesting and Leavers clauses as if the Founder still held them.
If one or more Founders propose to transfer Founder Shares in a transaction that would result in a Change of Control, they shall not complete the transfer unless the buyer has offered to buy all the other Founders' Founder Shares at the same price per share and on the same terms.
If Founders holding the Drag Threshold agree to sell all their Founder Shares to a bona fide third-party buyer on arm's length terms, they may, by giving at least 20 Business Days' written notice, require every other Founder to sell its Founder Shares to that buyer at the same price per share and on the same terms.
A transfer of Founder Shares made in breach of this agreement is void, and the Founders shall procure that the Company does not record it. Each certificate or notice of issuance for Founder Shares shall bear a legend referring to the restrictions in this agreement.
Restrictive Covenants
While a Founder is engaged by the Company, and during the Restricted Period, that Founder shall not, without the prior written consent of the Board, be engaged or interested in any business in the Restricted Area that competes with the Business as carried on at the Leaving Date and in which the Founder was materially involved in the 12 months before it, except as the holder of not more than 3 percent of the shares of a listed company.
During the Restricted Period, a Founder shall not, in competition with the Business, solicit any person who was a customer of the Company in the 12 months before the Leaving Date and with whom the Founder had material dealings in that period.
During the Restricted Period, a Founder shall not solicit or entice away from the Company any employee, consultant or director of the Company with whom the Founder worked closely in the 12 months before the Leaving Date, other than through general advertisements not targeted at them.
Each restriction in this clause is separate and is given to protect the goodwill of the Business and the value of the Founder Shares. If a restriction would be valid with part of it deleted or its period or area reduced, it applies with the smallest modification needed.
Constitutional Documents
The Founders shall procure that the Company's certificate of incorporation and bylaws are consistent with this agreement at all times and shall exercise their votes to amend them to remove any inconsistency.
If there is a conflict between this agreement and the Company's certificate of incorporation and bylaws, this agreement prevails as between the Founders, to the extent the law permits.
Future Financing
Investors in the Company may require this agreement to be amended or replaced, and the Company's certificate of incorporation and bylaws to be revised. Each Founder shall negotiate in good faith to accommodate those requirements, but no Founder is required to agree to a change that treats it less favorably than the other Founders in proportion to their holdings.
Tax
Each Founder acknowledges that its Founder Shares are subject to a substantial risk of forfeiture under the Vesting and Leavers clauses, and that it alone is responsible for deciding whether to file an election under Section 83(b) of the Internal Revenue Code within 30 days after the Founder Shares are issued, and for filing it on time. The Company shall give each Founder reasonable assistance with the filing.
Each Founder is responsible for its own taxes arising from its Founder Shares and confirms that it has had the opportunity to take independent tax and legal advice.
Term and Termination
This agreement continues until the earliest of the written agreement of all the Founders to end it; completion of a Change of Control or a Listing; the start of the winding up of the Company; and the date on which only one Founder holds Founder Shares.
A Founder who ceases to hold any Founder Shares ceases to have rights under this agreement but remains bound by the clauses that continue under this clause.
The following continue after this agreement ends or a Founder ceases to be bound by it: the Key Terms clause and the Definitions and Interpretation clause, so far as needed to apply the clauses listed here; the Vesting clause, the Acceleration clause and the Leavers clause, so far as the Acceleration clause provides that they continue after a Change of Control or a Listing; the Intellectual Property clause; the Confidentiality clause; the Restrictive Covenants clause, where included; the Notices clause; the General clause; the Governing Law and Disputes clause; and any rights and obligations that have accrued.
Notices
A notice under this agreement must be in writing and delivered by hand, by courier or by email to the relevant party at the following addresses: [Each party's notice address and email address]; or at any other address a party notifies to the others for this purpose.
A notice is treated as received on delivery if delivered by hand or courier, and at the time of transmission if sent by email unless the sender receives a message that it was not delivered. A notice received outside 9:00 a.m. to 5:00 p.m. on a Business Day at the place of receipt is treated as received at 9:00 a.m. on the next Business Day.
General
Nothing in this agreement creates a partnership or agency between the Founders, and no Founder may bind another Founder.
This agreement, with the documents referred to in it, is the entire agreement between the parties about its subject matter and supersedes any earlier understanding between them about it. Each party confirms that it has not relied on any statement not set out in this agreement, but nothing in this clause limits liability for fraud.
A variation of this agreement is effective only if it is in writing and signed by all the Founders.
A failure or delay in exercising a right is not a waiver of it, and a waiver is effective only if given in writing.
No party may assign or transfer any of its rights or obligations under this agreement, except to the transferee of Founder Shares in a transfer this agreement permits.
If any provision of this agreement is or becomes invalid or unenforceable, it is treated as modified to the minimum extent necessary to make it valid and enforceable or, if that is not possible, as deleted, and the rest of this agreement is unaffected.
Each Founder shall sign all documents and do all things reasonably required to give full effect to this agreement.
Each party bears its own costs of negotiating and entering into this agreement.
The Company is intended to benefit from, and may enforce, the clauses of this agreement expressed to be for its benefit. Otherwise, nothing in this agreement gives any person other than the parties any right or remedy.
This agreement may be signed in counterparts and by electronic signature, each of which is an original and all of which together form one agreement.
Governing Law and Disputes
If a dispute arises out of or in connection with this agreement, any party may give the others written notice of it, and the Founders shall meet within 10 Business Days after that notice and try in good faith to resolve it.
If the dispute is not resolved within 20 Business Days after the notice, any party may refer it to non-binding mediation with a mediator agreed by the parties to the dispute or, failing agreement within 10 Business Days, appointed by a recognized neutral dispute resolution provider chosen by the party requesting mediation. The parties to the dispute share the mediator's fees equally.
This agreement is governed by the Governing Law, without regard to its conflict-of-laws rules.
Any action arising out of or relating to this agreement shall be brought only in the state or federal courts located in the Forum, and each party submits to the personal jurisdiction of those courts and waives any objection based on venue or inconvenient forum.
TO THE EXTENT PERMITTED BY LAW, EACH PARTY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Damages may not be an adequate remedy for a breach of the Intellectual Property, Confidentiality or Restrictive Covenants clauses, and a party may seek an injunction, specific performance or other interim relief for such a breach from any court with jurisdiction, without first following the steps in this clause.