A founders' agreement is a contract whose purpose is to regulate the relationships between a company's initial shareholders within the framework of its incorporation. This agreement is of great importance and through it, shareholders can align expectations, establish management mechanisms, define roles, and specify their mutual rights and obligations. Although there is no legal obligation to draft a founders' agreement (unlike company bylaws), it is a highly significant document, which is recommended to be signed concurrently with the company's registration.
A founders' agreement is typically drawn up when a new company is being established.
A shareholders' agreement can be drafted at any stage, whether before or after the company's establishment. However, it is recommended to draft the shareholders' agreement as early as possible in order to reduce the potential for future disputes and to establish agreed-upon mechanisms through which shareholders can manage the company optimally, and even define how their rights will be preserved in a situation of future entry of additional shareholders, for example, within the framework of capital raising.
Articles and possible mechanisms in a founders' agreement
There are various types of mechanisms that can be established in a shareholders' agreement, and they should be tailored to the company's operations and the shareholders' interests.
Here are some examples of clauses that can be included in a founders' agreement:
- The founders' shares in the company and the rights derived from them, including profit shares.
- Founders' Roles – Details of the roles and authorities of each shareholder.
- Dispute resolution mechanism – A clause that anchors the way shareholder disputes will be managed, such as agreeing in advance to resolve the dispute through arbitration rather than through the courts.
- Company dissolution - distribution of rights and obligations in the circumstances of dissolution.
- Confidentiality and Non-Competition Clauses – Agreements regarding the company's intellectual property, restrictions on the ability to be associated with a competing business, and other agreements aimed at preserving the company's proprietary knowledge.
- Signatory powers and role holders – how role holders will be appointed in the company and the identity of individuals authorized to sign on its behalf and legally bind it.
- First refusal right - It can be stipulated that if one of the partners wishes to sell their shares to a third party, they must first offer them to one of the other shareholders in the company, effectively granting them the right of first refusal to purchase these shares.
- Tag-along right – a clause stipulating that if a shareholder receives an offer to sell their stake in the company, the other shareholders are granted the right to join the sale.
- Anti-dilution – a clause intended to protect partners in the event of share dilution.
- Preemptive rights – If the company conducts issuance rounds as part of capital raising, the partners will be able to maintain their shareholding ratio in the company.
Lawyer for drafting a founders' agreement
It is recommended to draft the founders' agreement as soon as possible, ideally in the initial stages of the venture. A professionally and correctly drafted agreement can often prevent unnecessary disputes and conflicts, protect the founders' rights amongst themselves and with external investors, ensure better, more efficient, and more profitable company management, and create certainty among shareholders regarding the company's management and the division of roles within it.
If you require a professional founders' agreement, specifically tailored to the venture's goals and shareholder wishes, you are invited to contact our office for legal consultation, and we would be happy to assist you.