(5 Minutes Read)

 Many wars had been fought and battles lost over the failure to draft a founder’s agreement. Some, founders, prefer to wait until they have a viable product before entering into such agreement and in the
Interim, between conceiving a business idea and working it into a viable

product that scales, a lot of things can go wrong between partners.

There ought to be an agreement on ground, signed by the partners, to

deal with certain possibilities and eventualities, which might later become

full blown litigation.

 

Scenario

 

A, B and C brainstormed on an idea that led into a business product, before the formal lunch of the product, A left for further studies abroad and did not participate in the running and planning of the business for 2 years.

After 2 years, A returned, he insisted he is still part of the Business, with as much equity as B and C.

 

In the scenario above, a founder’s agreement signed by the parties will duely resolve the issue at hand. A founder’s agreement stipulates who gets what, when and how. What such person needs to do to get what equity.

  [center]Contents of a Founders Agreement[/center]

 

Equity Split

The issue of equity split between partners is sometimes a touchy issue, it has caused a lot of business to collapse even before they launched. It is way easier to divide equity  before the product scales, than it is to draft a
founder’s agreement after the product scales

 
Roles and responsibilities

Roles and responsibilities of each partners must be clearly stated; clash will reduce when everybody knows what is expected of him or her and the evaluation system.

 

Early Exits

 This is aptly fundamental. A founder’s agreement should provide for situations of early exit by any partner, that in the event that a founder leaves prior to the company formation or before the products scales or
even after it scales. When such agreements are in place everybody knows what to expect and the resultant repercussions, without much quarrel. The partners may decide to set milestone for equity vesting, meaning that the departed founder could be granted equity for work so far done. The partners may decide  to give cash compensation for work so far done by the partner, or they may decide to include a clause that a partner who is
leaving and wants to sell his equity must first tell the other partners who would offer to buy it at fair price.

If A, B and C Agreed to commit murder, And A travelled abroad for further studies and comes back 2yrs leta to hear that B and C are in prison for murder, will he volunteer to join them cause he was part of the plan 2yrs ago....

@klinxman: The affairs of business and contract are better expressly made clear and unambiguous from the onset. It is irrelevant that he was not available throughout the execution stage of the business, where their is no valid founder's agreement, he will still be entitled to part of the Business or Shares if he sues.

kllinxman:
If A, B and C Agreed to commit murder, And A travelled abroad for further studies and comes back 2yrs leta to hear that B and C are in prison for murder, will he volunteer to join them cause he was part of the plan 2yrs ago....