How to Prepare a Founders Agreement part 2
This is a second part of my article where I explain in simple words how to prepare a Founders Agreement. In the previous part I’ve shared our own Founders Agreement, that we’ve signed in Staply. That agreement is used as an example in this part as well. If you missed it out, please find it here. Now I’m going to continue to the next parts of the Founders agreement.
Agreement part starts in the Agreement section with the following preamble:
“NOW, THEREFORE, in consideration of the above representations and understandings…”
Basically, it means, that “understandings” mentioned in the Recitals section are considered before creating and signing the Founders Agreement.
As I’ve mentioned before the main purpose of Rectails section is to describe the main points on which all Founders had agreed. So here I made a reference to it. If some statements or clauses of the agreement have conflicts with the recitals, it might be used as one of the arguments in court to prove your position. By the way, there is no need to use caps lock, it does not give you more “legal” power. I’m not sure why lawyers like to make some clauses in Caps.
“…and the promises and mutual agreements set forth below…”.
This part connects recitals and header section to the agreement section. In normal words these 2 statements can be described as “We agreed on the things, mentioned in Recitals section and then wrote a more detailed description of the terms in the agreement section” (I think lawyers will kill me for such a comparison).
“…the parties agree, effective on the date of this Agreement, to the following terms and conditions…”
The main idea of this statement is to describe that the terms and conditions are located below :) Also, i say that the terms and conditions of this Agreement are effective on the date of this Agreement (in our example, the date is March 3rd).
Alternatively, if you’ve already started to work on the new project and you want this conditions be applied to the specific date in the past, you may change “effective on the date of this Agreement” to “effective on the following date: October 23 2001”.
The first clause in our agreement is one of the most important. It describes the roles designation between the founders.
“Responsibilities of the Founders.”
The first sentence is just a title of the clause. It’s not a mandatory and i’ve made it only for convenience. If I’ll need to skim through the agreement, such titles might be very helpful.
“…The Founders agree that Full Name #1 shall be the CEO of the Staply and Full Name #2 shall be the COO of the Staply…”
The next sentence consists of two parts. The first part says that “Founders agree” about the roles designation between them. The second part describes who is the CEO and who is the COO. If you have more founders in your project, you can describe additional roles designation here as well.
The first part is quite important. If you don’t write it, then it can be understood, that someone from your team assigns a role to the person, without asking him. Person might not agree with the role. During the court hearings, this person could be saying something like this: “I was very dedicated to the project, then the CEO creates this agreement and gives it me to sign it, I signed it, I’m not a legal professional, so I didn’t understand all clauses from it…” etc. In my opinion, it’s better to avoid this kind of situations and simply put the statement “Founders agree”. I used it in almost all clauses of the Founders Agreement.
CEO’s and COO’s Responsibilities
The next clause describes the CEO’s responsibilities, again, agreed by the founders:
“2. CEO’s responsibilities. The Founders agree, that the CEO shall have at least following responsibilities.”
Please pay your attention to the words “at least”. While working in the startup we found it be quite difficult to describe all the duties of the CEO. Moreover, I think it’s impossible, since a startup is a very dynamic kind of thing. In the morning the CEO may engage with the Venture Capital company, after lunch sell the product and in the eventing write the code. That is why, i’ve used “at least” word in order not to limit additional optional activities of the CEO. So, in this situation, we’ve put only mandatory activities of the CEO to the Founders Agreement. But the CEO is not limited to this list, he can also perform other work. The mandatory activities will be used for KPI’s (Key Performance Indicator) measurement of the CEO. Of course in the future you may change a list of duties by signing additional agreement (I will describe how to do that in one of the next articles).
COO’s responsibilities are described in the clause 3 in the same manner.
List of responsibilities
In my very first article i’ve already wrote a list of the CEO responsibilities. If you missed it, please find it here. In our Founders agreement we have exactly the same list of responsibilities.
So, in the next article I will continue describing how to prepare Founders Agreement. If you have questions or feedback, you know what to do. Our subreddit