Co-Founder Agreement: What to Include, With a Clause Checklist

What is a co-founder agreement?

A co-founder agreement is a written contract among a company's founders that sets out who owns what, who does what, how decisions get made, and what happens if someone leaves. It can be a standalone founders' agreement signed before incorporation, or a set of documents put in place when the company is formed.

In practice, the terms usually end up spread across several documents: founder share agreements that record shares and vesting, IP assignment agreements, a shareholders' agreement or bylaws covering governance and transfers, and service agreements describing each founder's role. Even if a lawyer will draft these later, a short plain-language founders' memo signed early records what you agreed while everyone still remembers it the same way.

When should co-founders sign an agreement?

Co-founders should sign an agreement as soon as they decide to work together seriously, and before writing significant code, signing customers or raising money. Agreeing early is easier because less is at stake.

Natural moments to formalize it are the end of a successful trial project, incorporation, any contribution of cash or assets, and your first fundraise, whether through a SAFE, a convertible note or a priced round (the guide to SAFEs, convertible notes and priced rounds explains the options). Investors commonly review founder vesting and IP assignment during due diligence, so missing or informal terms can slow down a round.

What clauses should a co-founder agreement include?

A co-founder agreement should include clauses on roles, equity, vesting, IP assignment, decision-making, deadlock, departures, buyback, confidentiality, restrictive covenants, compensation, and dispute resolution. The table summarizes each clause and the question it answers.

How should co-founders define roles?

Define roles by area of ownership and decision rights, not just by title. Titles such as CEO and CTO mean different things at different companies, so write down who owns product, engineering, sales, fundraising, hiring and finance. Record each founder's time commitment, set a date or milestone for anyone not yet full-time, and agree how roles can change as the company grows.

How should co-founders split equity?

Split equity according to expected future contribution, commitment and risk, not only according to who had the idea. Equal splits are common among founders who start together and commit full-time, and an unequal split is reasonable when contributions, timing or risk differ meaningfully.

Discuss who goes full-time and when, what cash or IP each founder contributes, any salary differences, and who will carry the most responsibility. Write down the reasoning behind the split as well as the numbers; it helps when you revisit the decision or explain it to investors.

How does founder vesting work?

Founder vesting means each founder earns their shares over time, and the company can buy back unvested shares if a founder leaves. Four-year vesting with a one-year cliff is common: nothing vests during the first year, a quarter vests at the one-year mark, and the rest vests monthly or quarterly over the following three years.

Details to agree on:

• Reverse vesting. Founders usually receive all their shares up front, subject to a company right to repurchase unvested shares that lapses over time.
• Credit for past work. Founders who worked for months before incorporating sometimes receive partial vesting credit from day one.
• Acceleration. Single-trigger acceleration vests some or all unvested shares when the company is sold. Double-trigger acceleration requires both a sale and the founder's termination without cause, and investors generally prefer it.
• The 83(b) election in the US. Founders who receive restricted stock subject to vesting commonly file an 83(b) election with the IRS, which must be filed within 30 days of the grant. The deadline is strict, so put it on your calendar the day shares are issued.

This is general information, not legal, tax or investment advice; talk to a qualified professional about your situation.

Why does IP assignment matter?

IP assignment matters because the company, not individual founders, needs to own the code, designs, brand and inventions it depends on. Without a written assignment, a departing founder could claim rights to core technology, which investors and acquirers treat as a serious problem.

Make sure the agreement:

• Assigns all work created for the company, including work done before incorporation.
• Lists any pre-existing IP a founder keeps, and whether the company gets a license to use it.
• Moves domains, code repositories and other accounts into company ownership.
• Confirms no founder's current or former employer has a claim to the work.

How should co-founders make decisions and resolve deadlock?

Decide in advance which decisions each founder can make alone, which need agreement from all founders or the board, and how to break a tie. Deadlock is most likely with two founders who each hold 50 percent; an equal split can work well, but only with an agreed way to break ties.

A common structure gives day-to-day decisions to the founder who owns that area, while reserved matters need all founders or a board vote: raising money, issuing shares, taking on debt, selling the company, or hiring and firing senior people.

Deadlock mechanisms, often used in sequence:

1. Structured discussion and a cooling-off period, with each founder writing down their reasoning.
2. A trusted advisor or mediator who gives a non-binding recommendation.
3. A tie-breaking vote, such as giving the CEO the final say on defined matters, or adding an independent board member.
4. A buy-sell clause, sometimes called a shotgun clause, as a last resort: one founder names a price, and the other must either buy or sell at that price.

What happens to equity when a co-founder leaves?

When a co-founder leaves, the company typically buys back their unvested shares, often at the original price paid, and the leaver terms decide what happens to vested shares. Good leaver and bad leaver definitions are common in the UK and Europe, and US agreements reach similar outcomes through vesting, repurchase rights and definitions of cause.

Typical definitions, which vary between agreements:

• Good leaver. Someone who leaves because of death, serious illness or disability, or who is removed without cause. Good leavers usually keep their vested shares or are bought out at fair market value.
• Bad leaver. Someone removed for cause or in serious breach of the agreement, and in some agreements someone who resigns within a set period. Bad leavers may have to sell some or all of their shares at a lower price, such as the original price paid or nominal value.

Also define the buyback price and timing for unvested and vested shares, how fair market value is set, a right of first refusal so the company or remaining founders can buy shares before an outsider, and transition duties such as handing over accounts and documentation.

Keep bad leaver terms proportionate, since provisions that look like penalties can be hard to enforce in some jurisdictions.

Are non-compete and non-solicit clauses enforceable?

Whether non-compete and non-solicit clauses are enforceable depends on the jurisdiction. Some places restrict non-compete clauses sharply or refuse to enforce them, while others enforce them only when they are reasonable in duration, geography and scope. Non-solicit clauses, which stop a departing founder from recruiting staff or customers, and confidentiality obligations are often treated differently from non-competes, so assess each one separately.

Rules can differ by country and even by state or region, so get advice wherever a founder lives and works. For distributed teams, see the guide to working with a co-founder in another country.

Co-founder agreement checklist

Use this checklist when drafting or reviewing your agreement:

• Each founder's role, area of ownership and time commitment are written down.
• The equity split and the reasoning behind it are recorded.
• Every founder, including the CEO, is subject to vesting with a cliff.
• Founders who are US taxpayers and received restricted stock have filed an 83(b) election within 30 days.
• All IP, including work done before incorporation, is assigned to the company, and any IP founders keep is listed.
• Reserved matters that need joint approval are listed.
• A step-by-step deadlock process is defined.
• Good leaver and bad leaver terms, buyback prices and a right of first refusal are defined.
• Confidentiality, non-solicit and any non-compete terms have been checked against local law.
• Founder compensation and expense rules are agreed.
• Governing law and the dispute resolution process are specified.
• A date is set to review the agreement, for example annually or before each funding round.

How RUV Labs helps

An agreement is only as good as the trust behind it. On RUV Labs, members who post or send messages have completed free identity verification through our partner Didit. Profiles can also show document-verified badges such as Employment, Education and Business, reviewed by a person and valid for one year; see how they work on the verification page. If you are still looking for the right person, start with the step-by-step guide to finding a co-founder and the Co-founders feed.