Startup: Things need to be kept in mind when negotiating a founder agreement

Startup: Things need to be kept in mind when negotiating a founder agreement

Starting up is a difficult and arduous process. One of the noteworthy factors that determine the success or failure of a start-up is the team of founders. In fact, the failure of start-ups comes from conflicts and disputes leading to the left of founders. Therefore, to avoid conflicts and disputes between co-founders and ensure the interests of the company, it is essential for start-ups to enter into a founder agreement. 

A founder agreement is a legal agreement entered into by the founders of a company and is valuable to the adjustment of their business relationship. The main content of the founder agreement is the provision of the rights, obligations, and responsibilities of the co-founders. 

When negotiating a founder agreement, start-ups should note the following issues: 

1. Rights, obligations, and responsibilities of each founder 

When negotiating a founder agreement, start-ups need to discuss, agree upon, and produce a job description. This description should fully document the detailed roles, responsibilities, and authority of each founder in order to create transparency and clarity, as well as avoid unnecessary conflicts in the future. 

2. Ownership division 

The founder agreement needs to specify clearly and specifically the criteria for division of ownership, such as: 

  • Financial contributions; 
  • Business opportunities; 
  • Effort contributed by each founder (according to work efficiency or working time). 

The ownership ratio of each founder should also be accurately recorded in the founding agreement, and the issue of increasing or decreasing the ownership ratio also needs to be negotiated and agreed upon. 

3. Restraint of competition and confidentiality 

The most concerning issue for start-ups, especially technology start-ups, is the protection of technology secrets and business secrets. The recognition of confidentiality and competition restraint in the founder agreement is necessary and helps to raise the sense of responsibility of the founders when dealing with confidential equipment and information of the company. Provision on penalties for breaches should also be included in this regulation so that the founders will behave carefully when deciding on unfavorable matters to the company. 

4. Leaving the project ahead of schedule 

For start-ups, it is quite common for founders to leave the project ahead of schedule. Therefore, the non–disclosure agreement should anticipate and provide an appropriate solution to handle this problem. 

Solutions and legal consequences faced by founders when leaving the project are considered based on the role of the founder, the leaving time, and the way of leaving the project. It is necessary to pay attention to the compensation clauses when the founders leave the project without giving prior notice within a reasonable period causing damage to the project. 

Disclaimer: This article is for general information only and is not a substitute for legal advice. Apolat Legal is a Vietnamese law firm with experience and capacity to advise on matters related to Business and Investment. Please click here to learn more about our services and contact our lawyers in Vietnam for advice via email info@apolatlegal.com.

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