How to Build a Founders’ Agreement Without Ruining Your Friendship.

The instinct to avoid this document is understandable; nobody wants to open a conversation about “what happens if one of us leaves” with a co-founder they trust completely. But the legal commercial reality is the opposite of what that instinct suggests: a properly drafted founders’ agreement doesn’t strain the relationship.

The absence of one does, the moment anything goes wrong, because at that point you’re negotiating the hard questions under stress, without a framework, at exactly the moment you’re least equipped to agree on one.

Why “we trust each other” isn’t a legal position or the best long term strategy.

Trust governs how you behave when things are going well. It does nothing to resolve a genuine disagreement about direction, an unequal contribution that becomes obvious eighteen months in, or a co-founder who wants to leave and is unclear what happens to their shares. Those situations aren’t hypothetical edge cases; they’re foreseeable events a founders’ agreement exists to deal with, precisely because trust alone doesn’t survive contact with them.

The mechanism most agreements get wrong: vesting.

Founders often agree, informally, that shares will “vest over time”, usually meaning something like a four-year schedule with a one-year cliff. That’s the right commercial idea to keep founders incentivised. The legal problem is that simply agreeing that shares will ‘vest over time’ does not by itself create a mechanism for dealing with the shares if a founder leaves before they have vested. Shares, once issued, belong to the shareholder; getting them back requires either a voluntary transfer or an enforceable mechanism requiring or permitting the transfer. This is commonly dealt with through the company’s articles of association or a founders’ agreement, with the precise mechanism  depending on the structure adopted. The price paid will depend on the leaver provisions and may distinguish between vested and unvested shares.

Good leaver, bad leaver and why the definitions matter more than the labels.

Most founders’ agreements distinguish between a “good leaver” and a “bad leaver”. What falls within each category is a matter for the founders to agree, but good-leaver events might include death, mental incapacity, long term illness, termination without cause, while bad leaver events might include gross misconduct, voluntary resignation or material breaches of the founders’ agreement. A good leaver will often receive fair market value for vested shares and nominal value for their unvested shares. A bad leaver may be required to transfer some or all of their shares at nominal value or at a discount to market value.

Ensuring the definitions of what constitutes a good and bad leaver are thought about and clearly detailed at the start helps to protect the value of the company and the founder relationship, before anyone’s actual departure is on the table and emotions are involved.

Roles, authority, and what happens at deadlock.

Beyond equity, the agreement should address who has authority to make which decisions, from day-to-day operational matters versus the kind of decision (raising money, taking on debt, hiring senior roles) that should require the consent of the founders. Where two founders hold equal shares and equal votes, you also need a genuine answer to deadlock: what happens if you disagree and neither side will move? Mechanisms range from a casting vote held by one founder on specified matters, to mediation before any formal dispute process, to more drastic buy-sell provisions for a genuinely irreconcilable split. Silence on this point doesn’t mean it won’t happen; it means it will happen without a process to resolve it.

IP still needs its own clause.

A founders’ agreement is also usually the first place IP assignment gets addressed between the founders themselves, confirming that anything created by the founders prior to the date of the founder’s agreement is assigned to the company, to ensure IP ownership sits within the company and not with the founders personally. As with contractors, ownership of pre-incorporation work doesn’t automatically transfer just because you both intended it to; get it assigned in writing, whether in the founders’ agreement or a separate assignment, rather than leaving it to be assumed.

Where this document sits legally.

A founders’ agreement is a private contract to governing the relationship between the founders (and depending on the terms, the company). Some of what it covers may overlap with the articles of association. However, the articles are a public document, whereas a founders’ agreement is a private contract and can deal with more sensitive or detailed information.

The conversation feels harder before the company exists than it will ever feel once it does. In our experience, founders who have this conversation early and put a proper mechanism behind it, often find later disagreements easier to navigate.

*This is general guidance, not legal advice on any specific founding team’s arrangement. Acuity’s startup team can draft a founders’ agreement alongside making any changes to the company’s constitution to ensure the arrangements work effectively in practice.