Simple Guide: Creating a Founder Agreement

You have found your co-founder. You have the billion-dollar idea. The energy is electric. You are high-fiving across a coffee table, and in the heat of the moment, you grab a napkin and write "50/50" on it. You shake hands.

It feels like the perfect start. You trust each other implicitly. Why ruin the vibe with lawyers and paperwork?

But here is the hard truth: The "napkin phase" is the honeymoon. Eventually, real life happens. People change, priorities shift, and the stress of building a company kicks in.

A Founder Agreement (often called a Shareholders’ Agreement) isn’t a sign of mistrust. It is the "constitution" of your new country. It is the seatbelt you put on not because you plan to crash, but because you want to survive if you do.

Here is how to build a strong foundation before you build the house.

The "Prenup" for Business
It is awkward to talk about a breakup when you are just getting started. But the absolute best time to have difficult conversations is right now—when everyone is happy and rational.

If you wait until you are angry or disappointed to decide who owns what, it is too late.

A well-drafted Founder Agreement answers the scary "What Ifs" before they happen:

• What if we disagree on a major decision?
• What if one of us wants to quit and take a job at Google?
• What if one of us isn’t pulling their weight?

By answering these now, you aren't killing the romance; you are protecting the future of the company.

The Cliff and The Climb (Vesting)
Imagine you give your co-founder 50% of the company on Day 1. On Day 2, they decide they are bored and quit. They now walk away with half of your company forever, while you do all the work for the next ten years.

This is a nightmare scenario, and it kills startups.

The solution is Vesting. Think of it as "earning your keep."

In a standard agreement (often a 4-year schedule with a 1-year "cliff"), nobody owns their shares fully on day one.

• The Cliff: If a founder leaves before the first year is up, they walk away with nothing. This ensures everyone is committed to at least getting the plane off the ground.
• The Climb: After that first year, you "earn" your equity in small chunks every month.

Vesting protects the company. It ensures that the equity belongs to the people who are actually in the trenches building the value.

The 50/50 Trap
The easiest thing to do is split the equity equally. It feels fair. It feels nice.

But "equal" is rarely "fair."

Maybe one founder is putting in cash, while the other is putting in time. Maybe one has ten years of experience, and the other is a fresh graduate. Maybe one came up with the IP, and the other is handling sales.

Don't just default to an even split to avoid an awkward conversation. Use a logical framework to weigh contributions, skills, and future commitment. If you can’t have an honest conversation about value now, you won’t be able to have honest conversations about strategy later.

Who Owns the Ideas? (IP Assignment)
This is a technical point, but a critical one. In the early days, you are writing code or designing products on your personal laptop, maybe even in your living room.

Without a clear agreement, you might own that work, not the company.

If a founder leaves and claims they own the code they wrote, your company is uninvestable. A Founder Agreement includes an IP Assignment clause. This simply says, "Everything we create for this business belongs to the business, not to us individually."

Get It in Writing
It is tempting to download a generic template from the internet and sign it. But every team is different.

You don’t need to spend your entire budget on a legal team, but you do need to make sure your agreement reflects your specific reality. This document attracts investors. When they see a clean, professional Founder Agreement, they see a team that takes their business seriously.

Don't leave your future to a handshake. Build your constitution.

So, let's get writing together. And, let's get started on Solid Ground.