Corporate

Founder Collaboration Agreement

3min

⚡TL;DR

  • This is an agreement between the founders prior to the incorporation.
  • Having such an agreement forces important conversations, especially around the equity split.
  • Make sure that all co-founder IP is actually transferred and assigned to the future company, even if one of the co-founders leaves before incorporation.
  • Generate a free founder collaboration agreement on our website.
  • Book a free call with us.

Before you incorporate your company, it's a good idea to have a written contract that outlines your rights and obligations as you work on the project.

This ensures that the co-founders are aligned on the next steps. In particular, it forces co-founders to have important conversations in preparation for future incorporation, for example, regarding the equity split.

A founder collaboration agreement also serves as a basis for preparing the company's future shareholders' agreement, which will be drawn up after incorporation.

The fact of entering into a formal written agreement also serves as a psychological commitment that makes the venture "official".

  • An equity split (see below), meaning an agreement on the future share distribution of the company to be incorporated.
  • An agreement on the future incorporation of a GmbH/Sàrl or AG/SA.
  • An agreement on which founders will be elected to the board of directors of the future company.
  • An IP assignment ensuring that all IP created by the founders will be assigned and transferred to the company.
  • A description of the business or purpose that will serve as a goal for the founders.
  • A mechanism for how decisions will be made.
  • A clause regarding liability and whether such liability will be individual or joint.
  • A clause regarding expenses, gains and losses and how such costs will be split between the founders until incorporation.

Best practices

Co-founder agreement: If there is more than one founder, a co-founder agreement is in place before the incorporation of the company.

Equity split: The equity split (i.e., how many shares will each founder get after incorporation) is discussed with solid rationale (e.g., cash invested, pre-incorporation working hours, IP contributions, etc.) and agreed upon in writing.

Expenses, profits, and losses: It is determined whether the expenses, profits, and losses will be shared equally, based on the equity split, or in some other way.

Pre-incorporation IP: An assignment of all IP created in the course of the collaboration to the future company without any compensation is agreed.

Free generator: Our standard founder collaboration agreement can be generated for free here. 

  • Talking about equity allocation is always an uncomfortable discussion. But it is important to have this discussion as early as possible.
  • Be aware of the cognitive biases:
    • "I do more than others": In a flat-sharing community, everyone thinks they do the dishes more than anyone else. The same goes for people who think they contribute more to a startup than others.
    • Optimize for fairness, not pie size: It's better to have 1% of a big pie than 100% of a crumb.
    • Avoid conflict: Even if it's uncomfortable and leads to conflict, it's better to have the conflict now (and realize that you may not be a suitable team) than later.
  • Investors will ask about the reasons for the split: Remember that you need to be able to defend the equity split among the founders to investors.
    • Why do all founders have the same number of shares?
    • Why does one founder have a small number of shares?
    • Relevant elements for the split are notably pre-incorporation working hours, invested capital and contributed IP - here's an example:
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  • There are many resources available online to help you get started. One solution is to:
    • Start a spreadsheet with work performed and money invested.
    • After a certain period of time, split the pie (i.e., split 100% of the total equity) according to this logic (time x hourly rate + money x factor) / (contributions of all co-founders).
  • Be aware of the tax implications:
    • An equity split after the company is already incorporated can lead to unwanted tax consequences for the founders.
    • Shares transferred between founders may no longer qualify as "founder shares" for tax purposes.
    • Depending on the Canton in which the respective founder lives, a 're-allocation' of shares is possible within 6-12 months after incorporation, provided the company is not yet cash flow positive.

Generate a free founder collaboration agreement on our website.

Book a free call with us.

Read more on the LEXR Blog

https://www.lexr.com/en-ch/blog/co-founder-share-splits-for-startups-slicing-the-pie/













Updated 04 Nov 2024
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