The Importance of a Founders Agreement for Startups with Co-Founders

Dear #startupfounders,

?

After publishing my article "The Founders Agreement: A Must-Have for Startups with Co-Founders", I had some discussions with colleagues who questioned the necessity of the agreement. Through these discussions, I realized the importance of this post, so I am back to highlight the reasons why a founders agreement is important.

As i have explained, the Founders Agreement at its core, provides a unified, agreed-upon set of rules and guidelines for the founding team to align on and build from.

?

• It can help to protect your interests. The agreement can specify the ownership structure of the company, the roles and responsibilities of each founder, and the process for resolving disputes. This can help to protect your interests in the event of a disagreement or a founder's exit.

• It can help to ensure the success of your company. The agreement can clarify the company's goals and objectives, and it can help to ensure that everyone is on the same page. This can help to avoid conflicts and ensure that the company is managed effectively.

• It can help to avoid legal problems. If there is no Founders Agreement, and there is a disagreement between founders, the matter may end up in court. This can be expensive and time-consuming. A Founders Agreement can help to avoid these problems by specifying how disputes will be resolved. This foresight can prevent major legal disagreements down the line.

• The agreement can delineate various scenarios of a possible founder exit and detail the consequences regarding their shares, intellectual property, or technical knowledge. Whether the exit is voluntary or involuntary, having these scenarios explicitly stated in the agreement protects the interests of all parties involved and provides a clear path forward for the company's future.

?

• It can limit the right of transfer of its shares to the Founding team or other existing shareholders in the event of an exit. This right of first refusal ensures that founders can only transfer their shares to outsiders after other shareholders have refused the opportunity to acquire them, offering a safeguard for founders and their ownership stakes.See Section 142(1) of CAMA 2022?

I hope this provides some clarity and insight as you embark on this exciting journey. Keep in mind that a well-drafted Founders Agreement will serve as a cornerstone for your startup's growth and will help to keep your company on track and out of court. Do not forget to Seek legal counsel as you make the decision for your #startup.

?

With regards,

JM