The founders' agreement is the most important document your company will ever have, and the one most founders skip. It defines equity, vesting, decision rights, and what happens when things change. Doing it right takes 1-2 weeks; doing it wrong creates permanent damage.
The five things every founders' agreement covers
1. Equity split
How much each founder owns. Should reflect:
- Time committed (full-time vs part-time vs joining later).
- Capital invested.
- Idea origination.
- Skills critical to the company.
- Network and customer/investor access.
50/50 splits work when contributions are genuinely equal. Most teams have asymmetry — capture it honestly. Splits like 60/40 or 55/45 are common; over-equalization creates resentment when one founder out-performs the other.
2. Vesting
4 years total, 1-year cliff. Always.
Why founder vesting matters:
- Protects remaining founders if one leaves.
- Required by every institutional investor at first round.
- Prevents the "left after 6 months with 30% of the company" scenario.
Special cases:
- Single-trigger acceleration on acquisition. Some founders' agreements include this; investors often push back on it at Series A. Double-trigger (acquisition + termination) is standard.
- Vesting credit for prior work. If founders worked together for 6 months before incorporation, you can credit that as vested. Document explicitly.
3. IP assignment
Each founder formally assigns all relevant IP they've created (and will create) to the company. Without this, you don't actually own what your founders built.
The clauses:
- Assignment of pre-incorporation work. Anything built related to the company's mission before incorporation, assigned to the company.
- Ongoing assignment. All future work-related inventions, code, designs, etc., automatically assigned.
- Carve-outs for personal projects. List any personal projects that don't relate to the company. Protects founders' personal IP.
4. Decision rights
Who decides what. The minimum:
- Day-to-day decisions. Each founder owns their domain (CEO: business, CTO: tech, etc.).
- Mid-level decisions. Hires above $X salary, contracts above $Y, expenses above $Z — require co-founder approval.
- Material decisions. Fundraising terms, M&A discussions, equity grants above 1%, founder departures — require unanimous founder consent.
Without decision rights, every disagreement is a relationship crisis. With them, most disagreements are quickly resolved.
5. Departure provisions
What happens when a founder leaves:
- Vested shares stay. Founder keeps what they've earned.
- Unvested shares return. To the company, usually at zero cost.
- Option to repurchase vested shares. Some agreements give the company a right (but not obligation) to buy back vested shares at a defined price for a defined window.
- Non-compete and non-solicit. Defined period (6-24 months) where the departing founder can't compete or recruit your team. Enforceability varies by state.
- Confidentiality forever. Trade secrets and confidential information stay protected indefinitely.
The conversations to have first
Before signing, talk through these scenarios with all founders:
- What if one of us wants to leave in 18 months?
- What if our spouses or family situations change?
- What if we disagree on a major hire / fundraising decision / pivot?
- What if one of us gets significantly outpaced by the other in contribution over time?
- What if an acquisition offer comes in and we disagree?
These conversations are uncomfortable. They're also exactly the conversations that prevent later founder breakups. Have them now.
Common founders' agreement mistakes
- "We'll do it later." Later never comes naturally. Set a 30-day deadline post-incorporation.
- 50/50 to seem fair. Often creates the bigger fairness issue when contributions diverge. Capture asymmetry honestly.
- Skipping vesting because "we trust each other." Trust isn't the issue; protection is. Vesting protects everyone.
- Decision rights left informal. Every weekly argument becomes a foundational fight. Write the rules down.
- No IP assignment for pre-incorporation work. Comes up during diligence and creates problems if any founder built significantly before incorporating.
Pair this guide with our Delaware C-Corp guide for the incorporation steps that go alongside the founders' agreement, and our co-founder conflict guide for what to do when the agreement gets stress-tested.