Co-Founder Agreement Template

In plain language: Names each co-founder as a legal party, states their equity percentage, and records the total authorized shares each holds at signing.

Common mistake: Stating equity as a percentage without anchoring it to a share count. If new shares are issued before the agreement is updated, percentage ownership dilutes in ways the founders did not intend.

In plain language: Sets the timeline over which each founder earns their equity — typically a 4-year schedule with a 1-year cliff — and specifies whether unvested shares are subject to repurchase or simply forfeited on departure.

Common mistake: Omitting accelerated vesting on a change of control. Founders who don't negotiate single or double-trigger acceleration before a Series A find their unvested shares wiped out in an acquisition.

In plain language: Assigns a title and functional domain to each co-founder and makes clear that day-to-day operational decisions within each domain do not require the other founder's consent.

Common mistake: Leaving roles undefined and assuming informal division of labor will hold. Once money and stress arrive, undefined authority leads to decision paralysis and duplicate — or conflicting — commitments to third parties.

In plain language: Lists the major decisions — raising capital, issuing new equity, selling the company, taking on debt above a threshold — that require unanimous or supermajority founder consent.

Common mistake: Using a simple 50/50 veto for every decision in a two-founder company. Deadlock on routine matters with no tie-breaking mechanism halts operations — include an escalation procedure or deadlock resolution clause.

In plain language: Transfers all IP created by founders — before and after signing — in connection with the company's business to the company entity, including prior work directly relevant to the product.

Common mistake: No retroactive IP assignment covering work done before incorporation. Pre-incorporation code, designs, or inventions stay with the individual founder personally unless explicitly assigned — a deal-killer for most investors.

In plain language: Prohibits founders from disclosing or misusing the company's confidential information — technology, financials, customer data, and strategic plans — both during and after their involvement.

Common mistake: Confidentiality clauses with no carve-out for legally compelled disclosure. Without it, a founder subject to a court order could technically be in breach simply by complying with the law.

In plain language: Defines what happens when a founder exits — voluntarily or involuntarily — including the price the remaining founders pay for unvested shares and any vested shares subject to a right of first refusal.

Common mistake: No definition of Fair Market Value or the valuation mechanism. A vague reference to 'fair value' leads to protracted disputes — specify whether FMV is determined by the last funding round price, a 409A valuation, or a named independent appraiser.

In plain language: Restricts a departing founder from competing directly or poaching the company's employees and customers for a defined period after leaving.

Common mistake: Applying the same non-compete duration and scope to all founders regardless of role. A founding CTO with full access to the codebase warrants stricter and potentially longer restrictions than a founder who leaves before reaching the cliff.

In plain language: Provides a structured escalation process when co-founders cannot agree on a material decision, including mediation, a casting vote mechanism, or a buy-sell provision.

Common mistake: No deadlock clause at all in a 50/50 company. Courts cannot run a startup — without a contractual resolution mechanism, a prolonged deadlock results in dissolution, destroying value for both founders.

In plain language: Specifies the jurisdiction whose law governs the agreement and whether disputes are resolved by arbitration, mediation, or litigation.

Common mistake: Selecting a governing law state with no connection to where the founders or company operate. Several states — Delaware being the notable exception — apply local law regardless of what the contract says, particularly for employment-related restrictions.

A co-founder agreement is a legally binding contract between two or more startup founders that establishes the terms of their working relationship before the company raises outside capital. It covers equity allocation, vesting schedules, roles and decision rights, IP ownership, confidentiality, non-compete restrictions, and departure mechanics. It is the foundational document that prevents equity disputes — the single most common cause of early-stage startup failure.

Sign it on or before the date you form the legal entity — ideally before any founder writes a line of code, closes a customer, or contributes cash. Waiting until a funding round is imminent or until a disagreement has already surfaced makes negotiation adversarial and may void certain clauses for lack of fresh consideration. The earlier the agreement is executed, the cleaner the equity and IP history looks to investors.

There is no universally correct split, but the most durable arrangements are grounded in expected future contribution rather than past effort. Equal splits work well when founders have symmetric roles and commitment. Unequal splits should reflect material differences in capital invested, domain expertise critical to the product, or significantly different time commitments. Whatever the split, pair it with a vesting schedule — a 50/50 split with no vesting means a founder who leaves on Month 3 keeps half the company permanently.

The investor-standard schedule is 4 years with a 1-year cliff: 25% of a founder's shares vest on the 12-month anniversary, and 1/48th vests each month thereafter until fully vested at 48 months. This structure aligns founder incentives with the typical venture capital investment horizon and is expected by most institutional investors conducting diligence before a seed or Series A round.

Notarization is generally not required for a co-founder agreement to be legally enforceable in the US, Canada, the UK, or the EU. Both parties signing a clearly dated agreement — ideally with independent witnesses or via a timestamped electronic signature platform — is typically sufficient. Some jurisdictions may require notarization if the agreement is filed alongside real property or patent transfers. Confirm local requirements when operating outside North America.

Under a standard reverse-vesting structure, the company repurchases any unvested shares from the departing founder at the original issue price. The treatment of vested shares depends on whether the founder is classified as a good leaver (typically receives fair market value) or a bad leaver (typically receives cost price or a discounted value). These categories and their pricing mechanics should be explicitly defined in the agreement before signing.

They overlap significantly but are not identical. A co-founder agreement focuses on founder-specific terms — vesting, roles, IP assignment, and departure mechanics — and is typically signed at or near incorporation. A shareholders' agreement governs all shareholders (including investors) and addresses broader governance topics like board composition, drag-along and tag-along rights, and pre-emption rights on share transfers. Once external investors join the cap table, a full shareholders' agreement typically supersedes or supplements the co-founder agreement.

Yes, but any amendment requires the written consent of all parties to the original agreement. Material changes — such as adjusting the equity split, modifying vesting terms, or adding a new founder — should be documented in a signed amendment rather than a side letter or email chain. Note that adding restrictive covenants (non-compete, non-solicit) to an existing agreement may require fresh consideration to be enforceable in common-law jurisdictions.

Independent legal review is strongly recommended, particularly for agreements covering significant equity, IP with commercial value, or founders in jurisdictions with complex employment law. Each founder should have at least a 30-minute review with their own counsel before signing — the same attorney cannot represent both founders without a conflict. For pre-revenue startups with modest equity, a template review by a startup attorney ($300–$600) is typically sufficient.

Enforceability depends entirely on the jurisdiction and the reasonableness of the restriction. California, Minnesota, and Oklahoma ban or severely restrict post-departure non-competes even between co-founders. In most other US states, Canada, and the UK, courts enforce restrictions that are proportionate in duration (typically 12 months), geographic scope, and industry breadth. Overbroad clauses may be struck down entirely in some jurisdictions rather than narrowed to a reasonable scope.