Many small startups in the Denver area are born out of the contributions and ideas of several individuals. In most cases, the co-founders of a new business agree on many critical principles at first. However, disagreements can arise over time, putting the business at risk of failure.
One of the ways attorneys like us help entrepreneurs with their business formation efforts is by suggesting personalized startup strategies. When more than one person starts a business, we often suggest creating a founders’ agreement. This tool can go a long way in helping founders make decisions early on to avoid problems once a business begins to flourish.
What is a founders’ agreement? Essentially, it is a written document outlining the rights, roles and responsibilities of each partner in a new or existing business. The agreement can be as simple or detailed as you like, but it should be clear and easy to understand. Our lawyers usually recommend including the following important provisions.
- The names of each founder
- The length of time the document is valid
- Each founder’s role and his or her responsibilities
- The rights of all founders
- Company or business goals
- Ownership of intellectual property
- Each founder’s compensation, salary and equity shares
- Exit provisions in case a founder wants to leave the company
Many partners embroiled in the early stages of business formation fail to realize how a founders’ agreement works to prevent conflicts. When written properly, such a contract successfully addresses potential problems before they have a chance to occur. You can create your own founders’ agreement, but it is wise to have an attorney look over the document before any of you sign.
For successful more business formation strategies, please continue reviewing our firm’s blog and website.