What is Founders’ Equity Sharing Agreement? What terms should it contain?

The Founders Equity Sharing Agreement is a legal document, a written agreement between the founders of the company before they register a business entity. Upon registration of the company the terms of the founders agreement are usually incorporated into a shareholder agreement or LLC operating agreement depending on the entity type.

The Founders Equity Sharing Agreement should contain all oral agreements of the founders and of course the equity sharing matter. The usual terms it addresses are:

1.Events that may invalidate the current agreement and require a new agreement to be developed (e.g. receipt of outside investment, acceptance of a new equity partner, change of business entity type, etc.)

2. Division of shares between the founders

3. Present and future capital infusions

4. The event if one of the founders is unable to meet the capital infusion call

5. Vesting on founders equity interest

6. Non-compete

7. Assignment or licensing of intellectual property

8. Authority of each founder to make business decisions independently or upon mutual agreement with other founders

8. Death or legally incapacity of a founder

9. Any other matter that was discussed and agreed upon

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