The Document Most Startups Skip Until It Is Too Late
The founders agreement is not about distrust. It is about clarity.
| Scenario | Without Agreement | With Agreement |
|---|---|---|
| Co-founder leaves after 6 months | Keeps full equity | Loses unvested shares |
| Dispute over direction | Deadlock, potential lawsuit | Pre-agreed resolution |
| Who owns the code? | Unclear, disputes | IP clearly assigned |
| Investor due diligence | Red flag, kills deal | Clean documentation |
| One founder not contributing | Difficult to address | Performance clauses |
Category 1: Equity and Ownership
Clause 1: Initial Equity Split
Specify exact percentages, basis for split, share class, and nominal value. Do not default to equal splits without discussion.
Clause 2: Vesting Schedule
Standard: 4-year vesting with 1-year cliff.
| Period | What Happens |
|---|---|
| Month 0–12 (cliff) | Nothing vests; leave and you get 0% |
| Month 12 | 25% vests at once |
| Month 13–48 | Remaining 75% vests monthly/quarterly |
| Month 48 | Fully vested |
Clause 3: Good Leaver / Bad Leaver
| Type | Scenarios | Equity Treatment |
|---|---|---|
| Good Leaver | Disability, death, termination without cause | Keeps vested shares |
| Bad Leaver | Voluntary departure, termination for cause | Loses unvested; may lose vested |
Clause 4: Anti-Dilution Protections
Full ratchet for founders is rare. Most founders accept normal dilution and focus on growing the pie.
Category 2: Roles and Responsibilities
Clause 5: Defined Roles
Document titles, responsibilities, time commitment, reporting structure, and board positions.
Clause 6: Compensation and Benefits
When salaries start, expense reimbursement, future adjustments requiring board approval.
Clause 7: Outside Activities
Non-compete enforceability varies significantly across Europe. France requires compensation during non-compete periods; Germany limits duration.
Category 3: Intellectual Property
Clause 8: IP Assignment
This is the clause investors check first. If the company does not clearly own its IP, the deal dies. The assignment must be in writing — explicitly transfer patents, copyrights, trade secrets, trademarks, and domain names.
Clause 9: Confidentiality
Define what is confidential, duration (often indefinite for trade secrets), permitted disclosures, and return of materials.
Category 4: Decision-Making and Governance
Clause 10: Decision Rights
| Decision Type | Who Decides |
|---|---|
| Day-to-day operations | Individual founders (within role) |
| Significant decisions | Founder majority or consensus |
| Reserved matters | Board or unanimous founder consent |
Clause 11: Deadlock Resolution
Escalation: Discussion (30 days) → Mediation → Arbitration → Buyout.
Category 5: Exits and Transfers
Clause 12: Transfer Restrictions
Lock-up period, ROFR, ROFO, board approval, permitted transfers.
Clause 13: Drag-Along Rights
If majority shareholders agree to sell, they can drag all shareholders into the transaction.
Clause 14: Tag-Along Rights
If a majority shareholder sells, minority shareholders can participate on the same terms.
Clause 15: Non-Compete and Non-Solicit
6–24 months post-departure. European enforceability is stricter than US — some jurisdictions require compensation.
What Investors Actually Check
| Check | What They Look For |
|---|---|
| Clean cap table | Clear ownership, no disputes |
| Vesting in place | All founders on schedules |
| IP assignment | Company owns all IP |
| Governance | Clear decision-making |
| Good/bad leaver | Protection if founders leave |
The Bottom Line
15 clauses. One conversation. This week. Sit down with your co-founders. Work through this checklist. Then engage a lawyer familiar with your jurisdiction to document what you have agreed.
Related: Eurostars Funding Guide | The S.EU Company explained
Vesting mechanics are covered in depth in our founder vesting and co-founder agreement guide.
